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There's been a lot of talk about how the proposed bank bailout is somehow socialist. Senator Jim Bunning recently said that the bailout is "financial socialism," as well as just being plain old "un-American." Congressman Ron Paul has made similar statements, and some of the bloggers here at BloggingStocks have joined in the chorus as well (here and here). Now, I understand that the bailout violates the much loved principles of 'free markets' and 'democratic capitalism', but we can't let this violation muddy the meaning and history of different economic forms. In the long history of capitalism, socialism has represented an alternative that fundamentally challenges the capitalist structure of political and economic power. This bailout does no such thing.
If the bailout were truly socialist, it would result in long-term state ownership of the banking industry. No such option is on the table. Even getting a minority, non-controlling interest in the banks in return for the massive public investment has been controversial and thus far impossible.
Socialism has a long and complicated and even contradictory history. But the basic principle is pretty clear: economic activity should benefit all citizens and not just a small upper class. Accordingly, in a socialist state, major industries should be publicly owned and wealth should be shared. There are plenty of examples of socialism in action, including the state-owned industries in much of Europe after World War Two, as well as the fairly weak political forms of the welfare state in the U.S., including the Social Security system.
It is tempting to interpret the bailout in a corporatist framework. Corporatism in the name given to various economic and political forms in which power is jointly held by government and private corporations. Although corporatism has been found in different times and places, including West Germany in the 1950s and, arguably, in the U.S. during the New Deal and World War Two, the most famous type of corporatism is fascism. According to Mussolini, "Fascism should more properly be called corporatism because it is the merger of state and corporate power." Fascist corporatism is distinct in its opposition to labor, its worship of the state and its leader, and its embrace of violence.
Although there are disturbing parallels (the Iraq war, the irrational adulation of Bush and the Republican party on the far right, the government-backed suppression of dissent, the opposition to labor unions), the proposed bailout is probably best understood as an expression of typically American capitalist politics. Famed investor Jim Rogers comes closer to the truth when he described the bailout as "socialism for the rich." But socialism for the rich isn't socialism -- it's just another form of capitalism, one in which the rich are shielded from significant loss by the state.
A better term then is state capitalism. And to make clear who wins in this form of economy, we could say state corporate capitalism. In this common form, private corporations are allowed to aggressively pursue profit while the state shields firms and their managers from the danger of systemic meltdown. Arguably, this is how the American economy has been structured for at least the last hundred years.
Though our politics are filled with talk about 'free capitalism', there isn't much of it to be found on the ground. The most important sectors of the economy -- energy, military, transport, pharmaceuticals, communications -- are all protected or underwritten by the state in one way or another. We tend not to see this in the everyday economy, though, blinded by the ideology of free markets and democratic capitalism. It is only during economic crises that the truth becomes evident to a substantial portion of the population. And as the bailout makes clear, state corporate capitalism is not easily changed or challenged.
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Reader Comments (Page 1 of 1)
9-25-2008 @ 2:23PM
Chris said...
I do agree that we do not live in a Socialistic system. After all, the government does *not* own all of the means of production...Thank goodness for that.
So the bailout is not Socialism.
I also like that you acknowledged that we do not have free markets. So many people are delusioned into thinking that we do, and then try to blame free markets for our current mess.
Nothing could be further from the truth. Free Markets are yet to have their day in the sun.
Instead I think our system consists of a marriage between big corporations and the State.
9-25-2008 @ 3:24PM
Brandon said...
http://www.truthout.org/article/mccain-and-pow-cover-up
9-25-2008 @ 4:23PM
dj said...
First, the classic definition of socialism does not fit the bailout, but the leftist have a neo- socialist program that the bail out does fit. The democratic party (nee socialist party) learned some time ago they cannot effectively run anything well. They understand if they have to try to run a business it would fail almost instantly. So to get to the socialism they desire to have the USA under they have become Neo-Socialist. Let the people who have talent, brains and capability run the economy and the businesses and then take the gains from them and redistribute the booty they extract- to the non- productive. That will keep them in power. It is the redistribution of income, not through exchanges of value between parties (your labor for a wage thus taking some of the booty through an honest and importantly productive transaction) but "each according his need" philosophy. Barney Frank, Chris Dodd and others of their ilk beak up the financial community several years back to make loans to folks who "weren't getting their share" (see the transcript of the Barney Frank hearings with the financial industry executives). Now because of reserve rules the 5% non-performers have poisoned the securities mortgage packages that have been sold and resold. Thus the people in charge have to print money to bail out an industry that was brow beaten into making enough bad loans to bring in the government to rescue them and have the government as an owner in part. And they have added the touch that the failed borrowers are not to fail by “keeping them from being foreclosed upon” through our bankruptcy courts. This is why the bail out is neo-socialism.
9-25-2008 @ 8:41PM
Lynn Cruze said...
Somehow I do not picture Grover Norquist as either a Democrat or a socialist. I DO see that the author's quote of Mussolini is right on target for the economic policies of the last 10 or more years. I believe Norquist is smiling as his wish has come true, He and his co conspirators have actually shrunk the Federal Government enough to drown it in the bathtub full of Wall Street corruption and mismanagement- Katrina destruction just moved up town thanks to the "private sector will fix everything as soon as the Government quits protecting those pesky regular citizens that don't have 5 Million dollars."
9-26-2008 @ 12:51PM
Jerry said...
This is bull crap. It is socialism. you are merely mincing words and playing semantics. This is revealed in your last paragraph when you say that the state has been backing certain industries for the last hundred years. That is socialism. The state is merely indirectly controlling private industry through oversite and regulation. They are simply using the same tactics the maphia uses in neighborhoods to collect "protection money", they don't run the shops and let them go about their dailies but make sure they pay what is owed right? When the shop needs some help, they go to the local "goodfella" or whatever he is called.
Call it what it is and stop trying to add some so called educated spin to the reality of the situation. Show some balls for crying out loud! It IS socialism, period.
9-27-2008 @ 9:56AM
allison said...
So what do you call it when a country Nationalizes a company?
Would you prefer fascism? Communism?
Because deciding that my money is better taken from me and given to some billionaire is not exactly what the framers had in mind.
WaMu goes belly up. Shareholders get nothing. Top exec gets tens of millions. JPMorganChase gets a huge company for pennies on the dollar.
Whether you take the money from me and give it to shareholders, CEOs or even starving babies, it is still STEALING.
I didn't get us into this mess. I was responsible. I paid my bills. Perhaps I was an idiot? Is that the message we send now? The worst actors are the most deserving in this country?
What if we all "shrugged" and neglected to file our "voluntary" tax returns this year?
How long to you think you can make us your slaves? I already work nearly 5 months out of the year to pay taxes so these filthy robbers can get rich, how much more of my earnings do you think you will get away with before I stop working completely? At some point, it is a zero sum gain for me.
I went to Harvard Law. I work 95 hours a week. I bought a house and got a fixed loan when ARMs were very low and everyone laughed at me. The inflation of the money supply is hitting the country so hard, that I now have less actual money to spend than I did when I was 16 and working as a waitress. Seriously.
I get a 3% raise a year. Inflation (real inflation, not the junk they just count, I mean, the costs of everything I have to buy from food to housing repair costs, to healthcare, etc.) has been rising in double digits for years now. When I started working, 7 years ago we were doing well. Now, I rinse out paper towels and hang them up to dry. I wash sponges in the dishwasher. I cannot afford any help any more and on top of the 18 hour days I work, I now have to come home and clean the house for another 2 hours a night.
How long do you think I can live on 4 hours sleep a night? I am sick as a dog right now, so after I rail, I will go take a nap.
9-26-2008 @ 2:25PM
Brad said...
Absolute Bull.
Socialism By Surrogate !!!
When You Change The Rules Of The Game - You Change The Game.
I am very angry that anyone is talking about using my money to buy BAD DEBT. I have gone to great lengths to be fiscally responsible and to AVOID THE PONZI SCHEMES. I have seen first hand how the financial systems were JUICED.
Unless There Is Hunting And Prosecution Of The Perpetrators As Well As The Fixing Of The System To Keep This From Happening Again - Handing Money Over To The Accomplices Is Criminal !!!
You people better look into HOW the Bad Debt came about.
The Complexity Of Corruption Is Vast.
To Assume Benevolence Is Foolish.
Power Given Is Not So Easily Taken Back.
9-27-2008 @ 12:06AM
Mike said...
Of course it is socialist.
It's just not to the extant that the government owns all modes of production, but this bailout is definitely socialist in the sense that it depends on government intervention to tax one group of people to help another.
This promotes lazy stupid behavior.
9-30-2008 @ 12:29PM
Babak said...
state capitalism? you've would be correct were it not for the fact that the US government has never asked for, negotiated or even mentioned taking an equity stake in the financial companies which the bailout purports to help.
Instead the bailout proposal amounts to not much more than just handing money over to financial institutions which were dumb enough to get themselves and the US economy into this mess.
State capitalism would mean that they share their profits along with their losses with the state. But in this case they wish to keep their profits when they exist, and to offload their losses when they occur.
This is not capitalism. And it is not state capitalism
The Swedish model was state capitalism.
What is being proposed is socialism. And socialism is the correct name for it.
10-06-2008 @ 2:55PM
Adnihilo said...
The NeoCons blogs and websites like Aim.com have been heavily propagandizing false information to their 'indocrinated' Conservative base that designates the bailouts as 'socialism'. It's sadly ironic the NeoCon Fascists causing this economic crisis from massive deregulation of corporate greed can so easily "con" their TheoCon base...
As Michael appears to infer State Capitalism could be an appropriate alternate term for what the $1.8 trillion of bailouts in 2008 really are as corporatism, the economic policy of fascism. But corporatism by any other name is still corporatism...
It’s not the financial industry that’s being nationalized , or put under state control or ownership by bail outs handed over to corporations by our US government. It is our public funds, or US taxpayer dollars that are being nationalized by our government for use by the global financial corporate elite. A former senior adviser to the US Treasury and highly-regarded economics professor, Nouriel Roubini, put it best by citing US government bailouts as “socialism for the rich, the well connected and Wall Street; it is the continuation of a corrupt system where profits are privatized and losses are socialized.” What that means is it's socialism for the 400 richest Americans, but Fascism for the 150 million Americans those 400 are wealthier than...
Fascism is an 'authoritarian right' system of government that bases its economy on capitalism. These bail outs are an intentional Bush-GOP fascist economic government coup transferring unprecedented power to the Executive Branch by placing vast amounts of public funds in the form of our tax dollars into the hands of the global corporate banking elite. That is not a communist left economic ideology, but a fascist right economic ideology called corporatism. The economic policy of Fascism IS Corporatism which is also the preeminent defining characteristic OF Fascism.
The Bush-GOP government’s $1.8 trillion dollar bail out steals US taxpayer dollars and invests it into a growing list of financial corporations that went bankrupt from bipartisan [primarily republican] government deregulation of corporate greed increasing for decades now since the Reagan-GOP administration. For these bailouts to be a form of communism, [which is authoritarian socialism that you are falsely identifying as simply socialism] the US government would need to be fully intent on owning, controlling and/or creating [not just holding for transfer, or sale] financial corporations and their assets in perpetuity. The sole intent by Bush-GOP and government is only to free up, or ‘nationalize’ public funds in the form of US tax dollars for use by the financial or banking industry.
The nationalization of public funds used to bail out bankrupt US and multinational financial corporations from their own corruption encouraged by US government deregulation of corporate greed over the years is a treasonous act of corporatism. These bailouts are an unconstitutional corporatist act by our US government that embraces the very same economic policies of corporatism embraced by Italian and German Fascist governments back in the 1920s, 30s and 40s. Famous Italian historian Gaetano Salvemini identified corporatism as an economic policy of fascism in 1936 that makes taxpayers responsible to private enterprise, because “the State pays for the blunders of private enterprise. Profit is private and individual. Loss is public and social.”
The bailout is a corporatist fraud forced on to all taxpayers that does not address the core problem in the financial industry. This bailout only solves the problem the financial institutions are having from holding toxic assets. The bailout needs to be focused on the origin of the problem it is attempting to address, the homeowners who are defaulting on their mortgages. As Yale professors Koppell and Goetzmann point out, the financial instruments are troubled because of mortgage defaults. Stopping the problem at its origin restores the value of the mortgage-based derivatives and puts an end to the crisis. This approach has the further advantage of stopping the continued downward slide of housing prices and ending the erosion of local tax bases that have resulted from foreclosures and houses being dumped onto the market.
Now you could suggest there is a moral hazard from a type of socialism that bails out the homeowners who over-leveraged themselves, but the moral and economic hazard is far worse from this bailout's present corporatist [economic policy of fascism] form that will not solve the original problem. And remember, it was the toxic stew of government initiated deregulation of the mortgage industry with the housing bubble that created the circumstances for these corrupt, predatory mortgage lenders to abuse vulnerable borrowers to begin with. Congress needed to focus the bailout on refinancing the troubled mortgages just like FDR did in the 1930s, and not on the troubled financial institutions holding the toxic debt from the mortgages. This entire economic crisis only proves strict regulations are needed for free markets to even exist. It also proves once and for all the corporatist deregulation policies from predominantly republican administrations that were initiated during the Reagan era to achieve a 'free market' economy are a complete hoax....
For more info with supporting linked evidence see "Do You Support the Economic Policy of Fascism?"
http://lostvegas.us/LessThanHuman/?p=75