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After Neoliberalism. Empire, Social Democracy, or Socialism

Minqi Li Minqi Li was a political prisoner in China during 1990–1992. He teaches political economy at the Department of Political Science of York University, Toronto, Canada.

The author has benefited from discussions with David Kotz, Robert Pollin, James Crotty, Gerald Epstein, Leo Panitch, Gregory Albo, Samuel Gindin, and Patrick Bond.

Since the early 1980s, the leading capitalist states in North America and Western Europe have pursued neoliberal policies and institutional changes. The peripheral and semiperipheral states in Latin America, Africa, Asia, and Eastern Europe, under the pressure of the leading capitalist states (primarily the United States) and international monetary institutions (IMF and the World Bank), have adopted “structural adjustments,” “shock therapies,” or “economic reforms,” to restructure their economies in accordance with the requirements of neoliberal economics.

A neoliberal regime typically includes monetarist policies to lower inflation and maintain fiscal balance (often achieved by reducing public expenditures and raising the interest rate), “flexible” labor markets (meaning removing labor market regulations and cutting social welfare), trade and financial liberalization, and privatization. These policies are an attack by the global ruling elites (primarily finance capital of the leading capitalist states) on the working people of the world. Under neoliberal capitalism, decades of social progress and developmental efforts have been reversed. Global inequality in income and wealth has reached unprecedented levels. In much of the world, working people have suffered pauperization. Entire countries have been reduced to misery.

According to United Nations’ Human Development Report, the world’s richest 1 percent receive as much income as the poorest 57 percent. The income gap between the richest 20 percent and the poorest 20 percent in the world rose from 30:1 in 1960, to 60:1 in 1990, and to 74:1 in 1999, and is projected to reach 100:1 in 2015. In 1999–2000, 2.8 billion people lived on less than $2 a day, 840 million were undernourished, 2.4 billion did not have access to any form of improved sanitation services, and one in every six children in the world of primary school age were not in school. About 50 percent of the global nonagricultural labor force is estimated to be either unemployed or underemployed.1

In many countries, working people have suffered an absolute decline in living standards. In the United States, the real weekly earnings of production and nonsupervisory workers (in 1992 dollars) fell from $315 in 1973 to $264 in 1989. After a decade of economic expansion, it reached $271 in 1999, which remained lower than the average real wage in 1962. In Latin America, a continent that has suffered from neoliberal restructuring since the 1970s, about 200 million people, or 46 percent of the population, live in poverty. Between 1980 and the early 1990s (1991–1994), real wages fell by 14 percent in Argentina, 21 percent in Uruguay, 53 percent in Venezuela, 68 percent in Ecuador, and 73 percent in Bolivia.2

The advocates of neoliberalism promised that the neoliberal “reforms” or “structural adjustments” would usher in an era of unprecedented economic growth, technological progress, rising living standards, and material prosperity. In fact, the world economy has slowed towards stagnation in the neoliberal era. The average annual growth rate of world GDP declined from 4.9 percent between 1950 and 1973, to 3.0 percent between 1973 and 1992, and to 2.7 percent between 1990 and 2001. Between 1980 and 1998, half of all the “developing countries” (including the so-called “transition economies”) suffered from falling real per capita GDP.3

The global economy has been kept afloat by the debt-financed U.S. economy. Between 1995 and 2002, the U.S. economy accounted for 96 percent of the cumulative growth in world GDP.4 The U.S. expansion has been financed by reducing domestic savings, raising the private sector debts to historically unprecedented levels, and running large and ever-rising current account deficits. The process is unsustainable. The enormous imbalances have to be corrected one way or the other. If the United States cannot continue to generate ever-rising current account deficits and none of the other large economies are capable of functioning effectively as the autonomous driving force, the neoliberal global economy will be under powerful downward pressures and exposed to the threat of increasingly frequent and violent financial crises.

The social and economic disasters brought about by neoliberalism have already led to pervasive and growing popular resistance. The further deterioration of global economic conditions might well push hundreds of millions of people beyond the threshold of tolerance. A global rebellion against neoliberalism and capitalism cannot be ruled out. Those who consider themselves to be on the left, progressives or revolutionaries, should be ready, first of all intellectually, for such a development.

Neoliberalism and Global Stagnation

Neoliberalism is not able to provide an institutional framework for sustained global capital accumulation. Neoliberalism undermines and dismantles the institutions set up to stabilize the capitalist economy and alleviate capitalist social contradictions. The capitalist global economy is therefore left exposed to increasingly frequent and violent financial crises. As the editors of Monthly Review put it: “Globalization under neoliberal regimes has meant in many ways the globalization of stagnation tendencies and financial crisis.”5

Global effective demand is the sum of global private consumption, global private investment, and global government expenditures. Under neoliberalism, global inequality has reached unprecedented levels and working people in many parts of the world have suffered from absolute pauperization. It follows that the purchasing power of the great majority of the world population has fallen or grown more slowly than world output.

Private investment in the face of global overcapacity stagnates, and private capital turns to speculation in financial instruments. As a result of financial liberalization, cross-border speculative capital flows have greatly increased, raising the danger of capital flight and financial crisis. Against such dangers, some central banks are forced to maintain high interest rates, in effect paying a risk premium to global finance capital. The average ratio of real interest rate to GDP growth rate in the seven leading capitalist economies was 0.97 between 1881 and 1913, 2.40 between 1919 and 1939, 0.36 between 1946 and 1958, 0.55 between 1959 and 1971, 0.47 between 1972 and 1984, and 2.34 between 1985 and 1997. It is worth noting that the real interest rate has been higher than the economic growth rate only in two periods, the interwar depression years and the neoliberal era. A ratio greater than one implies an inversion of the roles of productive and speculative investment, and is a signal of systemic crisis.6

Under neoliberalism, governments have mostly pursued tight fiscal and monetary policies, restraining public spending. With liberalized financial markets, governments that run fiscal deficits are likely to be “punished” by private investors who may respond with capital flight and attacks on the currency. Therefore, governments (especially the governments of peripheral and semiperipheral countries) are under strong pressures to maintain fiscal balance by cutting expenditures. All neoliberal regimes seek to limit government expenditure. To summarize, in the neoliberal era, all three components of global effective demand are subject to strong downward pressures and have tended to either contract or stagnate.

The nineteenth century Marxists regarded the contradiction between socialized production and the capitalist system of private appropriation as the basic contradiction of capitalism. One may argue that the increasing socialization of production has found its expressions in the rising importance of fixed capital and the increasingly complex and interrelated financial structures. Since Keynes, many economists have understood that investment in fixed capital is subject to fundamental uncertainty and is often beyond the reach of rational calculation. The growing complexity of financial structures has greatly increased the chance that sudden movements in investors’ confidence and psychological conditions may lead to drastic and substantial fluctuations of investment and through investment, the economy. To prevent capitalist economies from falling into deep recessions or depressions, it is necessary to have a “big government” that can function effectively as the macroeconomic stabilizer.7

Neoliberalism, by pursuing financial liberalization and attacking the public sector, has significantly undermined and in some cases totally dismantled its stabilizing functions. The neoliberal era has seen increasingly frequent and violent financial crises. The Mexican crisis in 1995 was followed by the Asian Crisis in 1997, the Russian and the Brazilian crises in 1998, and the Argentine crisis in 2001. The role of the global macroeconomic stabilizer has been played throughout by the U.S. Treasury and by U.S. imports of goods and services increasingly in excess of U.S. exports; can this continue?

The U.S Financial Bubble and Imbalances

Without a large economy capable of generating some autonomous demand, the global economy might have already entered into a downward spiral. The U.S. economic boom in the second half of the 1990s and its large and growing trade deficit have functioned as counteracting forces against the generally contractionary tendencies of neoliberalism.

The U.S. economic boom was led by debt-financed private sector consumption and by a burst of corporate investment in “high tech.” The private sector financial balance (incomes less expenditures) moved from the historically normal range of 3–4 percent of GDP to unprecedented negative territory, reaching negative 5.5 percent by the third quarter of 2000. Household and corporate sector debts as a percentage of GDP were at historical peaks. Households were willing and able to borrow at such a rate because of the great asset price bubble. Measured by indicators such as Tobin’s “Q” (the ratio of market value of assets to replacement cost of capital) or by reference to price-earning ratios, the U.S. stock market bubble that reached its greatest expansion in 2000 is the most extreme in U.S. economic history.8

When the stock market bubble burst, corporate sector spending slowed significantly (particularly in “high tech”). To avoid a deep recession, the U.S. general government fiscal balance has moved from a surplus of 1.4 percent of GDP to a deficit of 4.6 percent of GDP between 2000 and 2003, or a swing of 6 percent of GDP, and the U.S. Federal Reserve has lowered the short-term interest rate from 6.5 percent to 1.25 percent. Despite the dramatic loosening of fiscal and monetary policy, U.S. growth has been sluggish and employment stagnant. These policies have in effect helped to sustain the bubble. Household sector debt expansion has been sustained, the stock market bubble has not been fully deflated, and a housing market bubble is in turn approaching its peak.

The U.S. current account deficit, largely the result of a steadily increasing deficit in its international trade in goods and services, reached 5 percent of GDP in late 2002. For the capitalist world’s hegemonic power to run a current account deficit on such a large scale is without historical precedent. By contrast, on the eve of the First World War, Britain ran current account surpluses close to 4 percent of GDP.

The U.S. current account deficits are matched by reciprocal capital inflows from the rest of the world. For the ever-rising U.S. current account deficits to continue, the rest of the world must be willing to hold an increasingly bigger proportion of their financial reserves in dollar-denominated assets. Stephen Roach, the chief economist of Morgan Stanley, points out:

Currently, about 75 percent of the world’s total foreign exchange reserves are held in the form of dollar-denominated assets—more than twice America’s 32 percent share of world GDP (at market exchange rates). At the same time, foreign investors hold about 45 percent of the outstanding volume of US Treasury indebtedness, 35 percent of US corporate debt, and 12 percent of US equities. All of these ratios are at or near record highs. Never before has the world put more stock in America—both as an engine of growth and as a store of financial value. The problem is that the math gets exceedingly tenuous if it is projected into the future.9

Projections of current account deficits at current rates need not go far into the future to become “tenuous.” According to one study by the Levy Economics Institute, under plausible assumptions, and supposing the U.S. economy to grow at a rate sufficient to lower the unemployment rate, the U.S. net foreign liability would reach more than 60 percent of GDP and the current account deficits could reach 8.5–9.5 percent of GDP before 2010.

Alternative Scenarios of Global Economic Crisis

There are four possible ways for the unsustainable growth in the U.S. current account deficit to be reversed. First, if the rest of the world grows more rapidly, indeed far more rapidly, than the current growth rate of the U.S. economy, there will be increased demand for U.S. goods and services, allowing U.S. exports to grow more rapidly to close the gap with the imports. Second, the U.S. current account deficit could be corrected by contracting U.S. domestic demand. Third, the explosive growth in the current account deficit may be corrected through adjustments in “relative prices”—i.e., devaluation of the U.S. dollar. Finally, the exercise of political and military power might affect the components of the growth in the current account deficit in a manner favorable for the United States.

There is no prospect in the next several years of the first possibility, i.e., growth in the rest of the world at a significantly faster pace than current growth in the United States. The burden shall fall on the second and third options which, while achievable, pose immense risks.

Limiting domestic U.S. growth, and therefore imports and the trade deficit, by raising domestic interest rates is certainly within the theoretical ability of U.S. policy makers. Indeed this would be the “orthodox” IMF medicine administered to any other state on the planet were it to find itself in anything like the U.S. current account difficulties. But the United States is not like any other state on the planet, it is the hegemon. No institution exists to force such medicine upon it. And for the U.S. ruling elite, this course is not politically possible, at least at this stage of the electoral cycle. But of even greater concern are the dangers posed by the vast unprecedented accumulation of U.S. consumer and mortgage debt. Absent a surge in domestic growth, which would itself aggravate the current account difficulty, rising interest rates risk a wave of personal bankruptcies of Great Depression proportions.

The remaining option is dollar devaluation, and it is clear that a gradual and controlled devaluation is the policy preferred by the U.S. Treasury, and already being put into effect. The depreciation of the dollar makes U.S. goods cheaper and foreign goods more expensive for U.S. households and corporations. It helps to stimulate exports and dampen imports. However, dollar depreciation reduces U.S. demand for foreign goods and exports deflationary pressures to the rest of the world.

The Asian economies (Japan, China, and Southeast Asia) together run current account surpluses of $230–240 billion a year, or nearly half of the U.S. current account deficits. But the Asian economies have either pegged their currencies to the U.S. dollar or have intervened heavily to prevent currency appreciation. This leaves the burden of adjustment almost entirely on Europe.

The European economy has not been able to generate any expansion in domestic demand, and its growth has relied exclusively on exports. Europe’s largest economy, the German economy, is in recession and such signs of growth as exist elsewhere are weak. Dollar depreciation therefore is particularly threatening for the European economies. Further, the Euro-area governments are constrained by the so-called “Stability and Growth Pact” which requires fiscal deficits no greater than 3 percent of GDP.

Financial circles have urged the European governments to pursue “structural reforms,” bringing labor and product market policies to U.S. standards. “Structural reforms” will supposedly unleash productivity growth that “in the long run,” will create conditions for vigorous demand expansion. From the point of view of financial capitalists, for vigorous accumulation to take place there has to be a dramatic improvement in profitability and capitalist confidence. For the capitalists to be confident, “structural reforms” have to take place to break the resistance of the working class. At this moment, it is not at all clear that the European capitalist class can decisively defeat the resistance of the working class. But if the so-called “structural reforms” are indeed carried out, their negative effects on domestic demand (through further attacks on working people’s living standards) may very well overwhelm whatever “positive” effects they may have on the “long run” accumulation.

With the European economy stagnating, it is inconceivable that it can absorb enough U.S. exports to correct the U.S. current account deficit. A correction that depends entirely on dollar depreciation would require a catastrophic decline in the dollar’s value. By some estimates, the dollar may need to fall by 30–50 percent. Such a decline would be politically, economically, and psychologically unacceptable.10

If the U.S. dollar is not going to depreciate against any other currency, why does the current account deficit have to be corrected? If the rest of the world’s central banks keep intervening, flooding the world with their own currencies (euros, Japanese yens, and the Chinese renminbi) to prevent dollar depreciation, why cannot the United States run an ever-larger current account deficit for an indefinite period of time? It cannot go on indefinitely because the rising U.S. current account deficits absorb a growing proportion of the global saving. A theoretical limit will be reached when the entire world’s saving is exhausted to finance the U.S. current account deficit. But the practical limit will be reached long before the theoretical limit. This course would raise U.S. and Japanese government debt to astronomical levels. These gigantic government debts would exist along with enormous household and corporate debts in the United States and Europe.11

How can these debts be financed? There are two possibilities. First, a global depression and widespread household and corporate bankruptcies may destroy much of the private debts. This is the historical solution that has obtained in all prior systemic crises of capitalism. In theory, as debt is devalued the conditions for a new cycle of capitalist accumulation on an even higher level gradually come to exist. But in the last such global depression such spontaneous recovery was inadequate, for reasons inherent in monopoly capital that are even stronger today. This option therefore supposes an extended period of depression. Whatever the outcome on this hypothesis one thing is certain, neoliberalism would be dead for a very long time, if not forever.

Secondly, the enormous private and public sector debts could be inflated away, that is, financed by printing money. Given the magnitude of the enormous debts to be inflated away, the inflation strategy may send the global economy into vicious cycles of hyperinflation and skyrocketing interest rates. If there is any one option ruled out by all of the various global ruling classes, it is this.

Towards an Imperial Solution?

Is there a solution to the crisis within the existing exploitative, oppressive framework? The U.S. economy is in deep crisis, and given the role it plays in the world economy much depends upon it. But U.S. imperialism continues to control the world’s most powerful, unchallenged military forces. Can the U.S. ruling elite use its forces to build an exploitative empire, establish unprecedented political and military dominance over the world, and in the process manage its economic crisis? In fact, current U.S. policy is an attempt to do just that.

To contain the explosion in the U.S. current account deficit, imports need to be reduced. One way is to reduce such key imports as motor vehicles and electronic goods by increasing their cost in U.S. dollars through a revaluation of the yen and the renminbi. This can only be achieved by political pressure, and it is being applied. Other substantial imports, such as clothing and footwear, cannot be reduced in quantity since U.S. producers no longer exist to supply the amount needed. Here costs can be contained by the relentless imposition of a “race to the bottom”—the continual transfer of production to ever poorer and more desperate countries. Here some military force works wonders in enforcing neoliberal immiseration; consider the results of U.S. intervention in Nicaragua and Africa. But the key import is mineral fuels, and here the long-term cost can only be contained by U.S. control of the physical resources. The hand on the spigot that regulates production (and therefore price) must be controlled by the United States. This is one aspect of the economic benefits of U.S. global political power sought through military strength.

The other aspect of any strategy to contain the unsustainable growth in the current account deficit needs to be an expansion of U.S. exports. Yet with the U.S. manufacturing base in terminal decline, only the prospect of monopoly prices for “intellectual property” offers hope. Here too the imposition of monopoly prices for the licenses, genetically modified seeds, pharmaceuticals, songs and movies, is a matter purely of political power based on military strength.

But how can this imperialist project be financed? The costs of U.S. military expansion are likely to aggravate rather than alleviate the U.S. economic crisis. Stephen Roach of Morgan Stanley asks the question: “Can a saving-short US economy continue to finance an ever-widening expansion of its military superiority?” His answer is: “The confluence of history, geopolitics, and economics leaves me more convinced than ever that a US-centric world is on an unsustainable path.”12

Could the U.S. military expansion be financed by the expansion itself? Andy Xie of Morgan Stanley estimated that the direct and indirect effects of the U.S. occupation of Iraq could save the United States $40 billion a year in expenditures on oil imports.13 Assuming these “benefits” are fully realized, that is only a fraction of the U.S. current account deficits.

But faced with the increasingly pervasive popular resistance in Iraq, the United States has not yet been able to realize any of these projected “benefits.” Months after the so-called “major combat operations” ended and despite the fact that the United States has committed half of its entire regular army in Iraq, the United States is losing its grip on Iraq, unable to control the roads and borders, the water, and the electricity supply.

Out of the U.S. Army’s thirty-three combat brigades, sixteen are now in Iraq, two are in Afghanistan, two are in South Korea, and one is in Kosovo. Of the twelve brigades in the United States, three are in modernization training, three are in reserve for possible war in Korea, and two are going to relieve the troops in Afghanistan. There are only four brigades left to relieve the sixteen brigades in Iraq. In effect, the United States has exhausted its entire regular army just to occupy such totally impoverished third world countries as Afghanistan and Iraq.

Whatever the economic “costs” or “benefits,” U.S. imperialism is losing the political and ideological battle. According to the latest survey of the Pew Global Attitudes Project (based in Washington), “America’s image around the world has taken a sharp turn for the worse.”14 The project of a U.S. global neoliberal empire based on force has already failed. Not because of internal limits in the working of capitalism alone, but because the attempt to avoid the economic crisis that neoliberal policies produce through global military dominance has already come up against its limits in popular resistance in Iraq. The crisis of neoliberalism shall follow.

Towards Social Democracy?

What will the post-neoliberal world look like? One possibility is a return to social democratic capitalism. Between 1950 and 1973, with social democratic institutions such as big government, Keynesianism, class compromise, redistribution of income and wealth, and regulation of capital, world capitalism experienced the great “golden age.” For a quarter of a century, the leading capitalist countries enjoyed rapid economic growth, low unemployment, rising living standards, and social stability. Peripheral and semiperipheral states were able to make some progress in national development through “import-substitution” or “socialist” industrialization. Could a return to social democracy bring about a return of the great golden age?

The inherent contradictions of capitalism did not stop developing under social democratic capitalism. Within certain limits, the social democratic institutions helped to alleviate the class conflicts and maintain a relatively high level of aggregate demand. Under certain historical conditions, these institutions were consistent with high and stable profit rates and facilitated rapid capital accumulation. However, as these institutions existed and operated, they tended to create new conditions that increasingly undermined worldwide accumulation. The changing balance of power between capital and labor, and between the core and the periphery resulted in the worldwide decline of profitability and contributed to the accumulation crisis in the 1960s and the 1970s.15 It was exactly in response to the crisis of social democratic capitalism that the global ruling elites started to pursue neoliberalism as the “solution” to the crisis.

Suppose the current crisis is to be resolved on a social democratic basis. National regulations of trade and capital flows are reintroduced, labor and financial markets are reregulated, income and wealth are significantly redistributed in egalitarian ways, and the public sector is again to play a significant role in the economy. Will these changes be sufficient to bring about a new golden age? Without changing the fundamental institutions of capitalism, what is to prevent the inherent contradictions of capitalism from developing? What is to prevent the “new” social democratic capitalism from entering into a new accumulation crisis?

The establishment of social democratic capitalism could not take place without at least a partial political victory of the working classes. But if that turns out to be the case, the working classes in different parts of the world will demand not only restoring their historical social and economic rights and consolidating their existing rights, but also greatly expanding these rights. How can these new social reforms be financed? If they have to be financed by additional taxes on capitalist profits, can the revival of social democracy survive the revival of the working classes’ bargaining power? The growth rates of the post-Second World War golden age were an exception to the stagnation that characterizes global capitalism in its monopoly phase. Absent such growth rates, no social democratic capitalism is possible.

There are other problems that a revived social democratic capitalism would not be able to address. Can social democratic capitalism provide the necessary institutional framework for dealing with the global environmental crisis? Environmental investment and regulations increase the overall costs of capitalist production (this is not to be confused with the fact that environmental businesses may create profit opportunities for some individual capitalists). There is the question whether after taking full account of environmental costs, the remaining profits would be sufficient to induce an adequate level of accumulation. But more likely, in a capitalist world economy with nation states, the competition between different capitalist states will prevent them from taking full account of environmental costs. In that case, social democratic capitalism will simply be an “alternative” way towards global ecological catastrophe.

Reevaluating Socialism

Marx said that the historical justification of capitalism was to develop the forces of production. Capitalism has clearly succeeded in the development of the forces of production. It has also succeeded in bringing about material prosperity for the top 15–20 percent of the world population. However, it has decisively failed to meet the basic physical and emotional needs of the great majority of human beings that live in the periphery and the semiperiphery. In fact, Immanuel Wallerstein questioned whether there has been any improvement of quality of life for the poorer majority of the world population since the beginning of the capitalist world economy.16

During the twentieth century, human beings twice went through the horrific catastrophes of imperialist wars that arose out of the fundamental contradictions of capitalism. The past quarter of a century was another dark age in human history. Under neoliberalism, inequality, oppression, and exploitation have reached new extremes. In the meantime, under capitalism humanity is rapidly approaching a global ecological catastrophe.

In the light of the enormous social and economic disasters brought about by neoliberalism, it is necessary to reevaluate the historical experience of socialism. Ten to fifteen years ago, the experience of state socialism in the former Soviet Union, Eastern Europe, China, and Cuba was generally considered to be a great failure. In addition to their undemocratic features, the state socialist societies were believed to have failed because they were not able to match capitalism in terms of efficiency and technical innovation. For a while, many have attempted to design new, “viable” models of socialism. Many of these models intend to be as efficient as capitalism by incorporating such capitalist features as markets, competition, and private incentives.

Now few would doubt that the majority of the Soviet and Eastern European people lived much better lives under state socialism than under the present “free” and “democratic” capitalism. Even in China, where the economy has been the most dynamic in the world, capitalist reforms since the early 1990s have substantially reduced the living standards of the peasants and the urban working class, so that in many respects (health care, education, job security, and workplace conditions), a significant portion of the Chinese working people now have lower living standards than during the Maoist era.

The historical achievements of state socialism should not be under-estimated. The accomplishment of full employment and job security (freedom from the fear of unemployment) for all capable adults, men and women, was of enormous importance. It is well known that state socialist countries had been more successful in meeting people’s basic needs (nutrition, health care, education, housing, and pensions) and improving women’s conditions than capitalist countries with similar levels of economic development. Soviet, Eastern European, and Cuban socialism had succeeded in meeting virtually all basic social needs, an achievement that most of the advanced capitalist countries cannot claim.

What will be the relevance of socialism for today’s struggle against neoliberalism? As the crisis of neoliberalism deepens, in many peripheral and semiperipheral states (such as in Latin America), the situation has developed to the point that without a complete break with international finance capital, the imperialist states, and the international institutions that represent their interests, there are simply no resources left (after paying a significant portion of the national output each year to international finance capital) for even simple reproduction of the society, not to say to address grave social problems. In this situation, the only sensible solution that is in the interest of the majority of the people is to make a complete break with the existing international capitalist order. The national economy needs to be restructured so that resources are redirected towards production for basic needs rather than organizing the national economy around exports to the core countries, under conditions of unequal exchange, in order to import luxury consumer goods for the privileged elites and the means of production that are used to reproduce the existing pattern of the international division of labor, generating “trade surpluses” to serve debt payments and finance capital flight. But these arrangements will inevitably have conflicts with the interests of the big financial and industrial capitalists. At some point, nationalization of the major means of production and the development of a comprehensive economic plan will have to be pursued for the economic and social transformation to be sustained.

In the former Soviet Union, Eastern Europe, and China the corrupt capitalist privatization processes are extremely unpopular. Should new social revolutions take place, one can expect the renationalization of all the illegally privatized assets to be among the top popular demands. The renationalized assets then would form the basis of a new socialist economy. The revival of socialism in the periphery and the semiperiphery may set in motion a new wave of world socialist revolutions.

Can the next round of socialist revolutions do better than the twentieth century revolutions? In what way can socialism prove itself to be better than capitalism? Summarizing the historical lessons of Soviet socialism, David Kotz argues that, in purely economic terms, centrally planned state socialism was a viable system. The Soviet system disintegrated because a procapitalist political alliance (including the majority of the bureaucratic elite) arose and gained power. Kotz suggests that for a future socialism to be viable, it must have a democratic state and other institutions that prevent the development of a privileged and dominant elite.17

Provided that a future socialist society will be based on political democracy, how will a future socialist economy be organized and structured? In addition to many existing theoretical contributions on the subject, future socialist movements will certainly be able to develop a great variety of new institutions, new practices in actual historical struggles. Ultimately, the future socialist economy has to be organized in such a way that it is capable of addressing the historical contradictions to which capitalism has failed to provide a solution.

Given the historical record of state socialism, one can have great confidence that an economic system based on primarily public ownership of the means of production and democratic planning (democratic control over the allocation of the social surplus) will have a great chance to succeed in meeting the basic needs of all members of society. If this can be achieved, then at the very least, socialism will bring about a better material life for the poorest 60–70 percent of the population in the world, whose basic needs have never been met under capitalism.

Socialism offers the best hope for humanity to avoid global ecological catastrophe and to build harmonious relationships between human beings and our environment. In this respect, the record of state socialism was not favorable. But the record needs to be understood in its historical context. In addition to the bureaucratic, undemocratic nature of state socialist planning, state socialist societies were forced to engage in military and economic competition against hostile capitalist powers. Given the context, they were forced to sacrifice everything in order to “develop the forces of production.”

The hope is that the future socialist society will have better, generally benign external environments (if there is not going to be a world socialist government). In that case, there will not be external pressures to force future socialism to develop the forces of production rapidly and in an unbalanced fashion. Given the arrangements of political democracy and socialist planning, people in these societies will be able to debate and decide, based on their own preferences, how much surplus they would like to generate as well as determine how the surplus should be allocated. The need to have a sustainable environment, through democratic processes, will be understood by the general public, and will be reflected in the planning, balanced against other needs and desires, including the desire for material comfort. Unless one believes that people will always be capitalist minded, always wanting more regardless of how that affects future generations, then it seems that sustaining the environment in which human beings live would certainly become one of the paramount objectives of future socialist planning.


  1. United Nations, Human Development Report (Oxford University Press, 2000 and 2002); James Petras and Henry Veltmeyer, Globalization Unmasked (London and New York: Zed Books, 2001), p. 24; Food and Agricultural Organization of the United Nations,The State of Food Insecurity in the World, 2003 (Rome, FOA, 2003).
  2. See Dollars & Sense, Real World Macro (18th edition, Cambridge, Mass.: Dollars & Sense, 2001), Appendix 3; Duncan Green, Silent Revolution (London: Cassell, 1995), p. 91 and Appendix A.
  3. Editors, Monthly Review, “The New Face of Capitalism,” Monthly Review, April 2002, 1–14.
  4. Stephen Roach, “Global: Do Imbalances Matter?,” Morgan Stanley Global Economic Forum,, September 2, 2003.
  5. Editors, Monthly Review, “The New Face…”
  6. It is an accounting truth that if the real interest rate is greater than the economic growth rate, then private and public debts tend to grow more rapidly than incomes or revenues (assuming zero primary financial balances), leading to ever-rising debt-income ratios. For data on real interest rates, see David Felix, “Asia and the Crisis of Financial Globalization,” in Dean Baker, Gerald Epstein, and Robert Pollin (eds.), Globalization and Progressive Economic Policy (Cambridge University Press, 1998), pp. 163–196.
  7. Hyman P. Minsky, Stabilizing an Unstable Economy (New Haven and London: Yale University Press, 1986).
  8. For neoliberalism and the U.S. expansion in the 1990s, see David Kotz, “Neoliberalism and the U.S. Economic Expansion of the 1990s,” Monthly Review, April 2003, 15–33. For statistics on U.S. household and corporate sector debts, see Wynne Codley, “The U.S. Economy: A Changing Strategic Predicament,” The Levy Economics Institute, 2003. For U.S. stock market valuation statistics, see John Y. Campbell and Robert J. Shiller. “Valuation Ratios and the Long-Run Stock Market Outlook,” Cowles Foundation Discussion Paper No. 1295, Yale University, 2001.
  9. Stephen Roach, “The Heavy Lifting of Global Rebalancing,” Morgan Stanley Global Economic Forum, May 27, 2003.
  10. See Martin Wolf, “The Rake’s Progress of the Dollar Comes under Threat,” Financial Times, January 8, 2003.
  11. On the current explosion of public and private debts in advanced capitalist countries and the potential danger of hyper-inflation, see Joachim Fels, “Europe—All: Too Much Debt,” Morgan Stanley Global Economic Forum, September 5, 2003; Tim Lee, “Inflation Is a Bigger Danger than Deflation,” Financial Times, May 27, 2003; Martin Wolf, “The Fine Line between Deflation and Inflation,” Financial Times, May 28, 2003.
  12. Stephen Roach, “Worldthink, Disequilbirum, and the Dollar,” Morgan Stanley Global Economic Forum, May 12, 2003.
  13. See Andy Xie, “Asia Pacific: The Ying-Yang World Reloaded,” Morgan Stanley Global Economic Forum, June 2, 2003.
  14. Financial Times, June 4, 2003.
  15. On the stagnation tendency of monopoly capitalism and the limits of Keynesian policies, see Paul A. Baran and Paul M. Sweezy, Monopoly Capital (Monthly Review Press, 1966) and Harry Magdoff and Paul M. Sweezy, Stagnation and the Financial Explosion (Monthly Review Press, 1987). On the changing balance of power between capital and labor in advanced capitalist countries, worldwide decline of profitability, and accumulation crisis, among others, see Samuel Bowles, David M. Gordon, & Thomas E. Weisskopf, After the Waste Land (Armonk, N.Y.: M. E. Sharpe, Inc., 1990) and Philip Armstrong and Andrew Glyn, Capitalism since 1945 (Cambridge, Mass.: Basil Blackwell, 1991).
  16. Immanuel Wallerstein, Historical Capitalism with Capitalist Civilization (London: Verso, 1995).
  17. David Kotz, Revolution from Above (London and New York: Routledge, 1997).
2004, Volume 55, Issue 08 (January)
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