Saturday, January 28, 2012

Socialism and the ‘Rebuilding of Capitalism’ – A response to Nigel Farndale

Above: Swedish Political Economist Rudolf Meidner was partly-responsible (along with Gosta Rehn) for the "Rehn-Meidner" model of the Swedish economy, and the radical attempt to institute democratic wage earner funds.

In the following article Tristan Ewins argues that capitalism must hybridise and adopt socialist aspects if it is to survive.  In criticising the position taken by writer, Nigel Farndale, he argues there is a different socialism than the Stalinism which imploded in the late 20th Century.

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 Just recently Nigel Farndale has had published an interesting article in ‘The Age’ concerning the future of capitalism.  The financial crisis of 2008 and the more recent degeneration of the US and European economies suggested a crisis – perhaps a collapse – not seen since the 1930s.   That being the case Farndale chooses to explore the means in which capitalism might be reformed – perhaps ‘to save it from itself’.

Addressing this question, Farndale explores a number of economic movements.  First the ‘decroissance’ or ‘decrease’ movement in France – which denies the centrality of General Domestic Product (GDP) to ‘economic success’ – pursuing ‘quality’ for all rather than mere ‘quantity’.  Hence (quoting economist, George Magnus “the need for a happiness index, or an economic and social well-being index”).   And secondly, Fardale mentions the “PARECON” movement – which promotes ‘participatory economics’ – with worker’s self-management and solidarity, and greater equality. (involving people in their status as consumers as well as workers)  These are all very interesting developments, and Farndale is to be thanked for drawing public attention towards them.

So far, so good.  But Farndale finds it necessary to pitch all this in the context of the dominant discourse.  Although otherwise sympathetic, he dismisses the concerns of the PARECON movement for equality in terms of economic power as “back to basics communism”.   And he damns communism as bringing genocide as if this were the inevitable consequence of seeking to creating of some “New [Soviet] Man”.  But the repressive Stalinist state was radically at odds with the spirit of the early Marxist movement; as well a variety of more liberal Marxist successors.

Farndale then returns to consider ideas of ‘noblesse oblige’ – as alternative to equality.   He argues that capitalism is a dynamic and evolving system; and claims basically that ‘capitalism is to thank’ for the welfare state.  He seems to agree that only capitalism – through competition and enterprise – can provide growth and recovery.   After all – what alternative is there if capitalism ‘has been [with us] through antiquity, feudalism” and so on?  And if capitalism is reducible to the existence of markets surely it is inevitable in one form or another…  Apparently, as with Churchill’s observations about democracy, capitalism is “the worst form of government [read economy], except for all the others that have been tried”….

 In response to Farndale, it is important to challenge his conception of both modern capitalism and socialism.  

To begin with, let’s look a capitalism. For Marx modern capitalism meant more than the existence of private ownership and markets.  Although these were surely important components, in some form or another they had been with us for centuries and centuries.  But the modern capitalism identified by Marx moved affairs to a different level.  Production for profit, and the rise and dominance of a specifically capital-owning bourgeois class came to eclipse the remains of feudalism, and the privileges of the aristocracy.   It also saw the demise of artisanship and craft labour and the marginalisation of old forms of self-employment. It saw the end of the guild system that had itself lasted centuries.  In their place capitalism brought mass production, mechanisation, deskilling, and an unprecedented commodification of labour. With access to ‘seed capital’ successful capitalists could well sustain profits even in the face of interest repayments.  This only expedited the overshadowing of the old ruling classes. 

These circumstances also involved the rise of a new proletariat – and consequently an increasingly conscious working class – who had nothing to sell but their labour power.  And during this early period this was basically in return for a meagre subsistence: workers realising little of the increased productivity for themselves.  What is more – unlike in the condition of artisanship and the craft economy, the product of the worker did not belong to him, but was expropriated for sale by the capitalist. (Hence for workers there was – and still remains - a degree of unpaid labour time and effort)  This was in addition to the alienation resulting from brutally demanding and unsafe work practices, involving men, women and children on 14 hour days, with night labour, and worse.

Increasingly, however, the capitalists who expropriated surplus from these workers were seen to develop into a ‘rentier’ class: who by virtue of their wealth could delegate matters of management and live a live of pure leisure.  Of course it wasn’t all like this: there were innovators and visionaries (as there are today); and there were the small capitalists who worked as hard as anyone; who often went bust in the face of competition; and more particularly in the face of increasing monopolisation. (which meant they could not compete)  These petty-bourgeois – or intermediatory classes – found themselves in a constant struggle for survival against the monopolists; and in those days there was no ‘social safety net’.  While Marxists such as Karl Kautsky appealed to the petty bourgeoisie that socialism would provide them with security, Conservative, fascist or economically-liberal forces (a mixed bunch) tried to turn their attention against the organised working class as a threat to their survival in the capitalist context.

But the boom and bust cycle – and capitalist crisis more generally - was more than the ultimately ‘creative destruction’ Farndale refers to.  There arose structural and functional unemployment – with a ‘reserve army of labour’ exploited to inhibit working class organisation; driving down wages and conditions, as well as inhibiting employment security.  There was immense waste as competition forced the premature and continuous modernisation of the means of production -  even when existing machinery had not yet been sufficiently utilised.   Only the monopolists with huge reserves of capital could survive in this environment – so this process hastened concentration of ownership - AND power. And in the event of cyclical crises immense amounts of capital and produce were destroyed because unprofitable in the marketplace– even where there was massive unmet human demand and need.  Inequality of wealth amongst consumers narrowed the market and thus actually inhibited the system.  Hence the ‘overproduction’ identified by the Marxists.

Moreover, in the modern day, with rapidly evolving technologies – there has emerged the practice of planned obsolescence: unnecessarily staggered release of technology intended to maximise sales. 

Farndale is right, though, that capitalism has evolved.  In different guises it survived the 20th Century in the sense of becoming a HYBRID system.

On the one hand - From laissez-faire origins and the age of the individual entrepreneur there emerged the joint-stock company, the trust, the rise and interpenetration of industrial and banking capital.  There arose what ‘Austro-Marxist’ Rudolf Hilferding called ‘Finance Capital’ – with unprecedented centralisation of ownership, control, and hence political-economic power.  Capitalism evolved in diverging directions with the rise of imperialism, and the competition between nation-states and their constituent capitalist classes for control of markets.  At various times capitalism has adopted an ‘organised’ form: especially under conditions of total war.  And fascism comprised not a qualitatively different kind of system – but rather an authoritarian, nationalist, militarist and corporatist variation upon the capitalist theme.

On the other hand post-war hybrid economies saw the introduction of the advanced welfare state; of labour market regulation and rights for organised labour; of the mixed economy – with emphasis on areas of ‘natural public sector monopoly’.  In countries such as Sweden and the other Nordics there emerged some of the most extensive welfare states anywhere: where security was combined with efficiency to provide ‘the best of both worlds’. Innovative ideas also included collective capital formation and co-determination.  Even in 20th Century Australia a compromise developed involving labour market regulation and strong unions, as well as socialised health-care, and ‘natural monopolies’ in energy, gas, water, communications, and other crucial infrastructure.  Also there was strategic public ownership in areas like banking and insurance to actually maintain competition in the face of collusion, and provide for consumers otherwise excluded or discriminated against because of lack of market power.  For a long time even political conservatives in Australia - in the Liberal Party and Democratic Labor Party - supported much of this compromise.

 In recent decades these variants have themselves been displaced by resurgent laissez faire capitalism.  Falling profits have been responded to with assaults on the rights of labour and labour’s share of the economy.  Hence exploitation has intensified with a mix of ‘labour market deregulation’ and increasingly draconian limits on the industrial action available to workers.  (so much for the ‘liberty’ held high by faux-liberals!)  Various forms of ‘corporate welfare’ have emerged.  This has involved an effective subsidy through maintained provision of infrastructure, education and training even in the context of corporate tax cuts, and increasingly regressive taxes for workers, consumers and citizens.  But the myth of triumphant capitalism has remained partly through the effect of technological innovation on peoples’ lives; and partly because of enduring myths about socialism; and the reality of Stalinist implosion in the late 20th Century.

In the short to medium term capitalism must again hybridise if it is to survive, and if it is to provide security and happiness for citizens, consumers and workers.  It must again incorporate significant socialist aspects. That capitalism itself did not implode entirely in the 20th Century was ironically due to the social forces Marx himself had helped mobilise for the cause of reform; and by reform spurred by the threat of a ‘Soviet pole of political attraction’. 

 A mixed system including economic socialisation and democratisation, here, is one possible response.  In Sweden socialists attempted to extract a greater share of democratic ownership in the economy as a trade-off for years of restrained wages; as compensation for resulting excess profits in some areas; and as a response to centralisation of private capital ownership.  That effort (for ‘Meidner wage earner funds’) failed because it attempted too much too quickly – and because it promoted exclusively wage earner funds rather than funds controlled by ALL citizens.  But many of its principles remain valid and instructive.

 Many of the problems identified by Marx still exist for modern capitalism.  There is a tendency for profits to fall – though ameliorated by the countervailing impact of qualitative technological leaps in productivity and material living standards. Labour and Nature remain the sources of all material goods: and regardless of objectivist and subjective interpretations of value, the reality of surplus extraction remains – even if it cannot be nailed down with precision. (there is the question of fair return on investment; considering the deferred gratification of small investors; as well as return for innovation and initiative)  For capitalists there remain uncomfortable questions about distributive justice – and the impact of plutocracy upon attempts to forge real democracy. 

 Capitalism remains unstable.  As well as demand management there is a need to capture the forces of innovation and efficiency that are unleashed by competition, while at the same time experimenting with more co-operative forms, and countering the effects of unnecessary and counter-productive cost-structure duplication and private monopolistic abuse of market power.  Hence strategic re-deployment of natural public monopoly and other appropriate forms of public sector extension.  Finally, collective consumption via the social wage and welfare state provide the most efficient and equitable means for citizens and consumers to access essential services in health, aged care, education, unemployment insurance, and other necessities.

Farndale mocks the idea of some ‘New Man’ he sees as embodied in the Marxism of Stalin and Mao.  But for earlier moderate and democratic Marxists such as Karl Kautsky one of the most noble aims of socialism was to democratise culture – to bring culture to the people. Since then we have seen the rise of universal education including a critical element incorporating the humanities and social sciences. For a long time the creation of public libraries further epitomised this vision.  Meanwhile abundance that Marx could barely dream of has brought music, literature and new information technologies to the masses.  Rather than some Stalinist caricature – the aim of socialists today is to further extend the democratisation of culture – through further extension of critical participation in the humanities and social sciences; through a culture of active citizenship; through the development of a participatory media and public sphere.   

Rather than repression, democratic socialists today seek the combination of a rational, innovative and participatory Democratic Mixed Economy.  There is a need to combine the efficiencies of markets, while doing away with unnecessary cost-structure duplication, massive overproduction, demand-crises rising from inequality, and other forms of excess and waste. 

In bringing our attention to the PARECON and ‘decroissance’ movements Farndale does readers a genuine service, however.  These movements continue to demonstrate some of capitalism’s greatest failings; and show that current-day crises can only be fought off with compromise – with a HYRBID system – as much liberal democratic socialist as capitalist.  But for radicals over the longer term there is still the dream of genuine democracy: of government by the people and for the people; where real popular sovereignty displaces the power of an economically and hence politically and culturally dominant capitalist class. 


  1. Just as the working class and employing class have nothing in common, socialism and capitalism have nothing in common. Two different sets of social relations based on two different modes of production and exchange.

    After the abolition of the horrid wage system by the workers themselves, the transition from the lower to higher stage of a co:operative commonwealth takes place using socially necessary time (SNLT) as a measuring device. After all, we're just out of a capitalist society and many people may still be hung up with notions of narrowly selfish individualism. To prevent the fear of free-loading and the actual act, SNLT will show that we're all doing our part. A modern communist society is large. We simply don't and can't know everybody on the modern commons as we might have in our small 150 or less peasant communities in the past, before the commons was destroyed--pre-18th century in the Anglo Saxon culture. At the current level of technology, SNLT could be recorded electronically. A good or service would be enjoyed by swiping a card taking however many minutes it took to produce the good or service off an electronically stored balance. Working in the production of goods and services would enable the producer to add socially necessary labour hours to the card as he or she put them in. Those who felt a greater need for goods and services or even for work itself (face it...many people enjoy what they do for a living now, why would this not be the case in a classless society?)...these people could put more time into the social store of goods and services. Those who did the least popular jobs could be compensated with say, double-SNLT being put on their cards e.g. one hour of underground mining equals two hours of working in a library. But of course, these matters would all be decided at the time by freely associated producers. I am merely speculating and proposing from my own era.

    This arrangement of using SNLT would make the whole production process transparent; it would leave the mystifications of mass commodity production behind, along with the wage-system which breeds it. An individual producer could see that s/he was putting in so much time and just like everybody else, could draw that time back out of the common store as needed. Still, this transitional arrangement would lead to inequalities in access to goods and services; but not to classes as nobody would be able to pay others a living sum of SNLT to get control over the collective product of their labour. Capital is essentially a social relation. Capital becomes political as soon as one person controls/owns the labour/product of the other, in other words, instantly for as that happens, the one person is able to tell the other person what to do. Having power over other people is the essence of political power and the foundation stone of the political State. Socialist praxis is based on equal political power amongst all women and men living in a classless society. There is simply no room for Capital in a transition to a higher level of a communist society.

    The highest stage of socialist society that I can imagine is one where there is no longer a concern about whether someone is or is not doing a fair share of the work necessary to keep the community together and measuring SNLT or using it to obtain goods and services from the collective product of labour becomes superfluous.

  2. The current crisis of capitalism is an opportunity to socialize capital, what the conservatives call nationalization is the state bailing out capitalism, whether as Keyensian safety net for capital, or in its bail out of banks and fordist production. However the reality is that capital needs its state to protect it and declare its inevitablity in order to avoid the obvious solution to this crisis the socialization of capital.

    That is currently there are only two sources of investment/fianance capital available, private equity and hedge funds and their partners our pension funds, what are called instutional investors.

    Along with workers wages and benefits, and the backing of the public through taxpayer investments, either subsidies or bail outs, all business and financial instutions of capitalism are currently not funded by private capital or bank capital at all but by public capital. In other words in order to bail out GM and Chrysler, the majority of the bail out was not just workers taxes but also workers pension funds holding bonds and workers sacrificing their wages/benefits/pensions for the bottom line.

    This socialization of capital, is ongoing, through things like P3's which are not Public Private Partnerships as much as Public Pension Partnerships. Trillions in public pension funds, which include union pensions, public sector pensions, and state pensions, are used to fund government P3 projects, with hedge funds and private equity kicking in a share, but still beholding to the pension funds to make the deal occur.

    The fact is that capital is socializing itself in order to benefit private profit. The solution is to socialize capital, to put it under our contgrol directly. To eliminate the instiutions of capitalism and replace them with cooperative, common ownership structures of worker community control. Since we not only own the largest share of capital but produce capital, our alienation is that our capital remains in the hands of a small elite of financial speculators either hedge funds, central banks, or pension boards.

    GM and Chrysler could have been transformed into worker controled models of production. So that when wages had to be reduced, and not benefits or pension contributions, in order to meet the bottom line workers owning the company would have met the challenge in the here and now. They would also have increased production, decreased inefficiencies, and created a more sustainable production model. This occurs whenever workers take over a abandoned manufacturing plant or one that is about to be abandoned, as occured in Argentina and Quebec.

    The fact that worker cooperatives, producer cooperatives and consumer cooperatives, as well as what Proudhon called Peoples Banks, credit unions, have existed as embryonic models of building the new society within the shell of the old, the potential now is that they could become a real mass alternative to either state captialism or financial capitalism.

    The reality is that capital is socialized the control of capital remains privatized.

  3. Some of this I would of course welcome, whether it is 'socialism' or not. But overall the whole project sounds a bit like squaring circle, or at least impossible in the absence of a massive, credible threat to the system, as during the Cold War. In the case of Australia, which party would champion it?

    Robert Verdon

  4. I think in Australia it's not impossible that some kind of limited subsidy for co-operatives could get up within the ALP; I also think in the coming years more and more people will be fed up with energy privatisation and its effects; I think there is enough of a base to mobilise around for moves back towards a mixed economy. But also I think the co-ops need to be more aggressive in their marketing... That's something they can do with or without government.


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