Back in December, when it was obvious that the economy was in bad shape and before we knew how precarious it could get, Fareed Zakaria, editor of Newsweek International and columnist for Newsweek and the Washington Post, wrote, “For Obama to be remembered as a great president, he has to do nothing less than rescue capitalism.”
When I first read those words my first thought was: that’s a lot of weight to put on a brother. I suppose Zakaria has had second thoughts about this as it is becoming increasingly obvious that in either the medium or the long term, it will take a lot more than the President to rescue the system. Set aside for the moment the question of the possibility or even desirability of saving capitalism; right now, most people are entrusting the President to do something about the present catastrophe.
The fact is, capitalism is bankrupt. It’s run out of capital. “I think we just have to admit we’re broke,” says House Minority Leader John A. Boehner. A system that is supposed to be self-perpetuating – albeit with ups and downs – has come up short. It’s not that the banks are just stubborn about lending out money. It will soon become clear that many of their vaults are stuffed with near worthless paper. And so to keep going, the system must turn to the public. Funds collected through taxation to “protect the general welfare” of the country are being siphoned off into the tanks of banks, financial speculation operations and insurance companies. The government is propping them up by buying up their assets. Regrettably, the Feds are not acquiring much control over how the injected funds are used.
But it’s not just the banks that have run out of capital. The bigger crisis is in the core of the “real economy.” “The destructive global power of the financial crisis became clear last year,” The Economist said in an editorial last month. “The immensity of the manufacturing crisis is still sinking in, largely because it is seen in national terms – indeed, often nationalistic ones. In fact manufacturing is also caught up in a global whirlwind. Having bailed out the financial system, governments are now being called on to save industry, too. Next to scheming bankers, factory workers look positively deserving. Manufacturing is still a big employer and it tends to be a very visible one, concentrated in places like Detroit, Stuttgart and Guangzhou. The failure of a famous manufacturer like General Motors (GM) would be a severe blow to people’s faith in their own prospects when a lack of confidence is already dragging down the economy. So surely it is right to give industry special support?”
The magazine went on to argue against bailing out individual sectors or industries. But that doesn’t mean it won’t happen. Although some influential voices in the world of capital are for allowing the auto industry to go quickly into bankruptcy, the likelihood is that more public funds will start pouring in to prop up GM, Chrysler and Ford just as Japan, Canada, Germany, Italy and France pour public funds into the coffers of their local car and truck manufacturers. And as things stand now there is no reason to believe the assistance will be limited to a single industry. Here too the government will be buying up assets and doling out guaranteed loans. Here too, the Feds are unlikely to demand much control over how the injected funds are used.
Last Sunday, in a CNN discussion with the Canadian Prime Minister, Zakaria opined, “We don’t have to reinvent capitalism.” Perhaps not. But clearly there is going to have to be some reconfiguration. Without some structural changes in the way the system operates worldwide, things could easily go from the current bad to worse.
“It would be fairly easy to dismiss the gleeful boast by President Nicolas Sarkozy of France that American-style capitalism is over, to file it with French critiques of fast food and American pop culture, the New York Times said editorially back in October, before the election. “Except that the United States government now owns stakes in the nation’s biggest banks. It controls one of the biggest insurance companies in the world. It guarantees more than half the mortgages in the country. Finance – the lifeblood of capitalism – has to a substantial degree been taken over by the state. Yet much more will be needed than just putting the bridle back on American banks,” said the paper.
“The question is what new direction capitalism should take,” said the Times. “In a globally interconnected world, the United States cannot simply march back to the gray flannel capitalism of the 1950s and 1960s when regulations were tough and coddled monopolies dominated the corporate world. Still, the next president will have a chance, not to be missed, to re-evaluate some tenets of the freewheeling, deregulated version of a market economy that has dominated America since the Reagan administration.”
“The next government must re-establish some notion of equity of opportunity,” said the Times. “Investment is desperately needed in health care, education, infrastructure. The social contract and the government’s role in it should be examined anew. Addressing these challenges will be an enormous task – especially amid the bitter recession that most economists expect over the next year or so. But they must be faced. Fixing finance is merely the start.”
If that is indeed the case, imagine where we would be if Obama had lost the election. Can you imagine John McCain even admitted the existence of a “social contract”? And keep that in mind next time you hear mention of Governor Bobby Jindel.
A few weeks ago I made the suggestion here that the government simply acquire the sinking auto companies, run them and reorient them toward “green” production of high speed rail cars, wind turbines and implements needed for the massive infrastructure projects now contemplated. I used the dreaded “n” word (nationalization) and drew some negative responses. Some argued for new public-private enterprises with partial worker ownership and voting power. Sounds good to me as long as public funds are used for public good and the objective is socially useful and ecologically sound production. cont’d on page 2