In a recent CBS This Morning interview, the presidential candidate Bernie Sanders pointed out that calling him a socialist was not fair but deliberately one-sided. If you looked at US society as a whole, it was, be it on the right or the left, a socialist society. There is socialism for the rich and socialism for the classes at the bottom. Sanders, of course, represents the latter form of socialism. His reading of the current US political economy is correct. But why? And why did the CBS interviewer seem so unconvinced by this plain and correct explanation of socialism in our moment, the 21st century?
The interviewer wanted Sanders to simply drop the socialism implied by his political position (he's a social democrat), and not confuse the public, the voters, who want what socialism has to offer without it being called socialism. But here is the thing. The American voter needs to know exactly what socialism means. It is this: A big government that never stops managing the operations and structure of economic life at all levels. It means this and nothing more. The difficulty, then, is to make voters understand this as a fact (socialism has been universal in Western democracies for the past 70 years) rather than as a rhetorical device.
In this post I hope to provide that explanation.
It is amazing that a liberal socialist won in Iowa and New Hampshire. The idea that we would give up the freedoms our veterans fought and died for is unthinkable. Other countries have to be scratching their heads wondering what we are thinking.
— Nikki Haley (@NikkiHaley) February 12, 2020
What most Americans don't know is that capitalism as it was understood and practiced in the 19th century was on its deathbed in the 1930s. This form of capitalism was called laissez faire, and had as it peak achievement the gold standard (GS). The gold standard was a way to manage national trade accounts. What this meant is: If your country had a trade deficit (importing more stuff than exporting), the gold standard forced you to lower production costs so that goods in your country became cheaper. This would then increase exports and draw gold from other economies into your country. This would reduce and possibly even eliminate the trade deficit.
But as an increase of gold improved your nation's books, they embarrassed those of another nation. This then forced the other country to also cut production costs, which almost always took the form of wages, to attract gold. As you can see, the GS was hard on workers. This fact is the root of the fantasy The Wizard of Oz. It's a protest against an economic mechanism (GS) that automatically made the workers pay for losses in national trade accounts. It's the meaning of William Jennings Bryan's famous "Cross of Gold" speech.
The Gold Standard collapsed after World War One. But not without a fight. Again and again, attempts were made to make workers pay for the downs of global capitalism. After the crash of 1929, the GS was dead. And governments in the West were not worried about trade account deficits but a full-blown Red rebellion. This fear led to what we have now: big government, be it in the Soviet sphere or that of the US. This marked the universal arrival of socialism. After the Second World War, there was no question about socialism. It was needed to fight capitalism, if you were in the East, or protect capitalism, if you were in the West (and the West at this point included Japan).
As the Turkish American economist Dani Rodrik explained very clearly in his 2011 book The Globalization Paradox, after the Second World War, public sector budgets in all "major advanced economies" rose sharply. In the period of leave-me-alone (Gold Standard, laissez faire) capitalism, public expenditure was around 10 percent (as Thomas Piketty pointed out in Capital in the Twenty-First Century). After World War II, it rose up to an average of 35 percent, with governments in Nordic countries spending as much 60 percent of national income.
When we look at the size of the government across different societies, we uncover a rather amazing fact. With very few exceptions, the more developed an economy, the greater the share of its resources that is consumed by the public sector. Governments are bigger and stronger not in the world’s poorest economies but in its most advanced economies. The correlation between government size and per capita income is remarkably tight. Rich countries have better functioning markets and larger governments when compared to poor ones. All this may be surprising at first sight, but the preceding discussion helps us understand what is going on. Markets are most developed and most effective in generating wealth when they are backed by solid governmental institutions. Markets and states are complemenţs not substitutes, as simplistic economic accounts would often have it.
This was socialism. In Europe and Canada, it paid for universal healthcare and public housing and income insurance. In the US, it went to veterans (GI Bill) and the suburbs (affordable home loans backed by the government and car infrastructure). And both the US and USSR vastly increased military spending (what is also called military Keynesianism). This your Cold War. But what happened when it came to an end with the fall of the Berlin Wall in 1989? Did the budgets of Western powers fall? They did not. Why not? Clearly, capitalism beat socialism, right? Now if you had this dichotomy (West, capitalism; East, socialism) in mind, it would appear that way. But if you knew that it was not a matter of socialism versus capitalism but how socialism was used, you would better understand the transition from post-war economics to post-Cold War economics, which is called neoliberalism.
Neoliberalism is not, as it sounds, a return to the liberalism of the 19th century, which was defined by small government budgets, almost no social welfare programs, and the indifference of the Gold Standard. It took a completely different direction. Markets were no longer to be left alone but be supported by all of the available resources of the state. The state that once funded social programs now made sure that markets did not lose money and that returns on speculations remained to the liking of speculators. We live in this world still. This is the socialism of the other side, the side of the very rich.
Even today, the US government is keeping a dead stock market alive with huge injections of public cash.
From Financial Times:
When repo rates spiked at 10 per cent in mid-September, it shook the US Federal Reserve. So much so that the central bank has in the intervening months bloated its balance sheet by more than $414bn to $4.2tn...
How exactly is this capitalism? How is this not socialism? Why do we even play these dumb games? Why is it not obvious to everyone that we have been a socialist society since 1933?