The current edition of Newsweek magazine declares “We are all Socialists Now”. Coming soon after Time Magazine’s depiction of Karl Marx on its cover in an article entitled, “Rethinking Marx”, you might be forgiven for believing that socialism has finally triumphed over the notion of free enterprise. But that would be if you did not go beyond the cover of both magazines! John King on CNN’s “State of the Union” was the one who alerted me on Sunday night to the Newsweek story. Given its bearing on my article which was already a work-in-progress, I delayed completion of the column to see the on-line edition of the magazine and inverted the story’s title for this article.
The Newsweek story does not expect America or indeed Europe to adopt the socialist model as seen in China (before Deng Xiaoping), Leninist or Stalinist USSR or Cuba. Instead the core argument was that America at the end of the process unleashed by the current financial and economic crisis would resemble Europe rather than the extreme free market capitalism seen under Reagan and George W Bush. Which is not exactly the same as Marxism. It is true of course that one notion of capitalism has been discredited by the current crisis. The extreme right wing view of a free market without government, without regulation and without taxes advocated by Reagan, theorised by the so-called Chicago School of Economists, and implemented for the last eight years under Bush has failed, and deservedly so.
This view was however not the mainstream view of economics. Most economists and market analysts accept that sometimes markets fail, and in such situations, governmental action is required. They recognise that there are areas of societal development that markets may not address at specific points in time and which government and other actors need to fill the space-education, health, disease eradication, and many aspects of infrastructure and public goods for instance may have to be provided by government or else no one will. Policing and public safety as well as national defence and security may not be fully amenable to the market mechanism. And the current financial crisis makes it clear that while the profit motive is useful in stimulating innovation, unbridled search for profits often leads to greed and may undermine the markets hence the need for regulation.
The problem as Bill Clinton pointed out during the recent campaigns is that the Reaganite “trickle down” economics ideologues (lower taxes for the rich and prosperity will trickle down to the poor), did not have the opportunity of fully implementing their notions due to democratic control of congress, until under George W when Republicans controlled the White House and both Houses of Congress to disastrous results as we have now seen. Those policies expanded the fiscal deficit, increased the national debt and left the weakly-regulated financial sector and people like Bernard Madoff free to exploit the gullible public. It is a fitting irony that it is a conservative Republican who has now being forced to nationalise banks to preserve a more sensible definition of capitalism.
The Time Magazine story “Rethinking Marx” reminds us that “Marx’s utopian predictions about revolution and the triumph of socialism were dead wrong; indeed many of the policies carried out in his name in the 20th Century brought misery to millions in countries ranging from Russia to China, and large chunks of Africa.” Of course, the ongoing crisis confirms that just as any human system, capitalism also has its limits. Time concedes that Marx was right in his diagnosis of these limits-capitalism left on its own will expand inequality between the rich and the poor; it treats labour like a commodity to be purchased, but work should bring fulfilment; potentially unrestrained capitalism will squeeze the middle class out of existence, leading ironically to the collapse of capitalism since the middle class is required to purchase goods and services produced by capitalist firms; and in capitalist systems, profits take a larger and larger share of the economy at the expense of wages again accentuating the gap between the rich and poor and marginalising the middle. America has seen all of these dynamics play out and that is why America as Newsweek predicts will continue to move closer to the European model which uses taxes to redress inequality and provides welfare and benefits for the poor.
The lesson here is that reason and human experience is more useful than pure ideology in shaping society. That is the lesson China also learnt from the left! When Deng Xiaoping became Chinese leader in 1978 he realised that socialism was destroying and impoverishing his people and advocated to his communist colleagues the injection of some capitalism into the Chinese economy urging his party apparatchiks, “It cannot harm us, it cannot harm us”. He defined a new economic system which he called, the “Socialist Market Economy” which accepted private property, markets and profits-the central elements of the capitalist system, but retained the communist political structure. The point is even Deng Xiaoping and post-Deng China were pragmatic in re-interpreting Communist doctrine to redress the obvious limitations of socialism.
What do I believe? I am a “socialist” in those areas that concern the poor-public education, health, rural development, public transportation, unemployment and social security, subject to social policies being sustainable. However the economy functions best in line with free enterprise principles and so I am convinced most economic sector decisions are best based on market principles. But government retains a role-to ensure markets are fair, competitive and well-regulated, to protect labour and other less-powerful groups, and to shape investment climates and provide macro-economic stability and security.
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