Four Letters on Capitalism and Socialism

To John Bellamy Foster in Eugene, Oregon
July 25, 2001
John,

When I was in Egypt [in 1976], David Rockefeller arrived at the Cairo airport with much hoopla. The newspaper pictures showed him greeted like a head of state, while the news items reported that he came from his meeting in Paris because his friend Sadat asked him to come. Coincident with Rockefeller’s visit, I was invited to meet with the heads of Egypt’s planning committee. They reported with shock that Rockefeller told Sadat he would only invest in Egypt if he had assurance that he would recover his capital in three years. It came as no surprise to me, given the ways of capital, and the state of Egypt’s economy. It was the way a responsible banker would operate. (At the same session, the planners told me that negotiations were going on for a loan by the IMF. When I told them to expect that the IMF would demand the removal of the subsidy on bread, they said it would be impossible because there would be bread riots. When I returned home the newspapers soon reported bread riots in Cairo.)

Even in more prosperous and “reliable” countries, capitalists figure on getting their investment back within a calculable period and profits forever after. (There are well-established formulas for making the calculation, notably in resource development. Ph.D.s are at work in oil companies, for example, plodding with such calculations.) A longer-term perspective by investors is at times evident in the development of mines, oil wells, and other natural resources. In these areas the motives may be to have a sure supply of materials for the manufacture of a final product or where the rate of return is expected to be unusually high. But even in these cases the time perspective may stretch to 10 or 15 years—a far cry from the 50 to 100 year perspective needed to protect the biosphere. For the latter, account has to be taken of water resources and its distribution, clean water, rationing and conservation of nonrenewable resources, location of projects that take into account effects on population and the environment. The latter cannot be factored in to the needs of non-philanthropic capital which needs to recoup its investment in the foreseeable future plus a flow of profits to warrant the risk and to do better than other investment opportunities.

On the whole, big capital has to think about the stock market. The market is a source of capital for expansion and a facilitator of mergers and acquisitions. The income of the top executives is tied to the market—as a profit-making source using options to buy stocks at a fixed price; as a measure of huge annual bonuses. The long-run point of view is of little use in the fluctuating stock markets. The perspective in stock market “valuation” is the rate of profit gains or losses in recent years or prospects of next year’s profits. Even the flood of money going into the “new economy” with future prospects in mind, despite company losses, has already had its comeuppance. Speculative investment via market or venture capital may have some patience for a year or so, but patience evaporates very quickly if the companies invested in keep on having losses. Corporations not only invest their own surplus funds and rely on the market; they borrow via long-term bonds. For this, they have to make enough money to pay interest and to set aside a sinking fund for future repayment of the bonds. Needless to say, other than limitation of emissions, cleaning up polluted waters, and such, the real protection of the environment requires a view of the needs for generations to come. A good deal of global environmental long-term policy has to do with the third world—exactly the place where, except for extraction of natural resources, capital has the most restricted turnaround limits. The short-term outlook is not a question of a “good” capitalist here or there giving up profits for the sake of society, but the way the system works.

John, I don’t know whether this is of any help to you. There is nothing here new to you. But perhaps it may help in selecting a sentence here or there. Let me know if you would like me to add things.

Love,
Harry

To István Mészáros in Rochester, England
March 18, 2003
Dear István,

It isn’t easy to write when the eyes are on the keyboard while the ears are pinned to the radio to learn whether the hounds of war have already been let loose. Your citing Rosa Luxemburg in your new preface brought to mind these words from the same chapter:

Indeed, for Marx the urge of capitalism to expand suddenly forms a vital element, the most outstanding feature of modern development; indeed, expansion has accompanied the whole history of capitalism and in its present, final, imperialist phase, it has adopted such an unbridled character that it puts the whole civilization of mankind in question. Indeed this untamable drive of capital to expand has gradually constructed a world market, connected the modern world economy and so laid the historical basis for socialism.

Examining the course of socialism will take us off the current topic. I would however, like to bring up a hypothesis, which I think may be worth looking into. You state in your excellent preface that “in accord with the objective requirements of imperialism—world domination by the worlds most powerful state…ruthless authoritarian ‘globalization’ (dressed up as ‘free exchange’ in a U.S.-ruled global market) is ultimately unwinnable….” I think this is so on economic as well as military and political grounds. Globalization needs an authoritarian leader to keep the ship afloat, while on the other hand, a boss can’t prevent the inevitable strife among the powers. In other words, disorder and imbalance is inherent, with or without a boss. Left-wing theoreticians have stirred the pot and come up with a range of explanations of this contradiction. First came the revelation that the nation-state had become impotent. Given that perspective, others insisted that an international capitalist class ruled the global economy. Now, a new proposition: the absolute rule of the United States now and forever! A couple of comrades, together with various specialists, whom I generally respect, are currently hard at work to show how the United States at the top of the heap has the strength and the wit to avoid or resolve major economic crises.

A heavy backlog weighs down my desk, so I need to try to be brief, not so easy for me. I think modern globalization has roots in decolonization. The latter, however, did not diminish the powers’ need to exploit colonies for the sake not only of markets and investment, but also to strengthen their own financial structure (e.g., when Britain owned India, Britain had a troublesome deficit in its balance of payments, which was settled with the large supply of silver in India). Decolonization spurred international organizations to control and influence the liberated colonies and semi-colonies. Hope for even more control of the underdeveloped countries remains alive. (An ex-NATO general, Wesley Clark recently stated: “We’re at a turning point in American history here. We are about to embark on an operation that’s going to put us in a colonial position in the Middle East following Britain, following the Ottomans.”) Underlying the major problems of world capitalism has been the persistent stagnation trend, even in the face of the new electronic technology. With this stagnation came a shift in the money markets of the core countries: a growth and increasing dependence on finance and speculation. What happened in the international financial markets, notably since the ’70s is a good example of the transformation of quantity to quality. And the money markets became a key arena where the struggle for power is dominant. The latter shows up clearly at international economic and money conferences.

Two important sources of current and future crises (ones which I think have bearing on your thesis). (A) Money and trade imbalances between capitalist nations—money shown dramatically in the continuous and expanding deficit in the U.S. current account balance of payments since 1992. What’s at stake here is the leading position of the strong U.S. dollar, which faces loss of status, if not collapse, if the flow of capital shifts from inflow to outflow. The war in Iraq won’t be a remedy for the weakness of the U.S. economy and its dollar—thoughts that may have influenced in one way or another France and Germany’s staunchness at the Security Council. (B) The incredible growth of derivatives in money markets is a source of increasing instability in the world economy. These highly speculative devices, interrelated in the major financial markets are a time bomb for the international financial system. Total derivative contracts amounted to $70 trillion in 1998. The growth continued even in the recession. In 2000 it reached $99 trillion and in 2002 approximately $125 trillion. As I see it, the causes of the war are not only oil, Bush’s madness, Tony’s toadiness, the U.S. fundamentalist Christian right, the Jewish neo-conservatives.

Nothing will be gained by my trying to explain or excuse the delay in writing to you. The workload persists, energy is declining (notably sight), and who knows?—I may just be a procrastinator pure and simple. I have been trying to abdicate from the position Paul and I had, with an eye on more democratic, collective procedures. This is not only a political position. It is also practical—a recognition that age has its limitations, let alone limit.

I was excited reading your preface to the second Turkish edition. It is truly important and stimulating. I immediately sent copies to the circle of editors and advisers. There was no disagreement, just an awful slowness of the process. The long and short of it: we would like to publish it in a near issue of MR. May we please have your permission?

I am comfortably situated in Vermont. Son Fred and daughter-in-law Amy are wonderful caretakers.

With Love to Donatella and You,
Harry

To Michael Lebowitz in Caracas, Venezuela
February 2, 2005
Dear Mike,

I don’t recall sending you congratulations on being chosen for the Deutscher Prize. Let me emphasize: Congratulations!!! Well deserved.

Thanks for sending me a copy of your letter to the MST. As you know we are in the same camp with respect to the issues you raise. Many lefties make a big deal about emphasis on growth. They worry about it for good as well as bad reasons. The questions should not be on growth rates as such. The essential questions should be: what kind of growth, for what purpose. You illustrate the useful (indeed necessary) speed in the USSR in the prospect of a great war to snuff the Bolsheviks. The destruction of the USSR was built into the Versailles Treaty. As Veblen said, if that was not a secret clause, it was the very parchment on which the treaty was written. As I see it, the heart of the problems of the USSR was the way it was done and the social relations that developed in the process. The economy was operated as a war economy; under conditions that led to a bureaucratic elite that reproduced itself, a stratified society, and a privilegentsia. (In 1930 an elementary school was established in the Kremlin. Any guesses for whom?) To continue, the USSR retained some of the features of an empire. Tsarist Russia expanded throughout the nineteenth century, and was a typical empire. The Bolsheviks at first did a great deal in improving the material and cultural conditions in the subsidiary republics. At the same time, big differences remained. There were large differences between the GNP/capita of Russia and its periphery.

You may be interested in Lenin’s concern with consciousness. An example from his “Last Testament”:

There is no doubt that that measure should have been delayed somewhat until we could say that we vouched for our apparatus as our own. But now, we must, in all conscience, admit the contrary; the apparatus we call ours is, in fact, still quite alien to us; it is a bourgeois and tsarist hotch-potch and there has been no possibility of getting rid of it in the course of the past five years without the help of other countries and because we have been “busy” most of the time with military engagements and the fight against famine.

It is quite natural that in such circumstances the “freedom to secede from the union” by which we justify ourselves will be a mere scrap of paper, unable to defend the non-Russians from the onslaught of that really Russian man, the Great-Russian chauvinist, in substance a rascal and a tyrant, such as the typical Russian bureaucrat is. There is no doubt that the infinitesimal percentage of Soviet and sovietized workers will drown in that tide of chauvinistic Great-Russian riffraff like a fly in milk.

The growth for the sake of growth continued after the Second World War. Stalin then wrote a little book on economic issues. Mao wrote some notes on reading it. Mao’s first sentence stated that Stalin talked about things, not people. My hypothesis on the Soviet madness for growth rates after the war has to do with the hot shots who ran the stratified nature of the economy. The privileged top dogs were interested in transferring their power and privileges to their children. For that they needed property ownership.

Oy Mike, I’m getting tired and still have to get at the scheduled tasks for the day. Zei gezunt and keep the red flag flying.

Love,
Harry

To Michael Lebowitz in Caracas, Venezuela
August 4, 2005
Dear Mike,

I like the excerpt from your presentation on twenty-first-century socialism very much indeed; read it more than once, and forwarded to my list. Liking includes special interest in your ideas. It would be great if we could discuss it in person. This time some words on the paragraph on technology.

I take it for granted that you are referring to technology as a symbol of the excesses on industrialization, not technology itself which is needed to sustain and improve the soil, grow greater crops; medical advances…which reminds me of an article in Nature on Cuban science.

As for industrialization itself, there is an overwhelming part of the globe where industrialization is of major importance—to meet basic needs of the people, protect the environment, and make armaments to be able to face invasion of imperialist powers.

The Soviet program cannot be dismissed out of hand. It is significant in so far as it demonstrated to underdeveloped countries that it is possible [for a nation in such circumstances] to pull itself up by its bootstraps, and later—the ability to defeat the Nazis. Nevertheless, the design and implementation of the Soviet model (created by the winners who in due time overrode—eventually killed—the opposition in the Politburo) was part and parcel of entrenching a bureaucratic elite and led to a development that favored the top dogs and the urban centers in the core republics of the empire (great Russian chauvinism). The conquering ideology insisted that the bigger the factory or enterprise the better, and that heavy industry had to predominate at the expense of light industry and the basic needs of the people.

When I worked at the War Production Board I met with members of the Russian purchasing mission and was astonished, among other things, by their worship of the big and the focus on catching up and overtaking the United States. An example of the arbitrary yearning for bigness: One of the corporate executives I worked with, told me about his experience in Moscow to draw up a contract for his company to build a ball bearings plant. As they were drawing up the contract after long negotiations dealing with the meshing of technical and financial matters, Molotov walked in. When informed of the nature of the contract, his central question was about the effective ratio of performance to nominal capacity. When told 80 percent, he ordered “Enlarge the size 20 percent.” My “pal” laughed as he told the story, “that was great, not sensible but so much more for us.”

The conventional wisdom in top levels of the USSR and post-reform China was infested with the belief that monster factories were the key to U.S. greatness. Interestingly, a proper statistical comparison showed that the United States had a larger percentage of small to big firms than did the USSR. The Russians and the post-reform Chinese weren’t aware that the data in the U.S. census they took as an ideal were for corporations as a whole, whereas the monster corporations had factories of various sizes, often quite small. The giants also encouraged independent small enterprises nearby to supply them with important services.

The current reformers in China also have a craze about bigness. I got a big whiff of it in 1983 when I lectured to the Academy of Social Science (or some name like that). They treated me like a buddy and sent me the first number of their journal in English. Lo and behold, the lead article was about bigger was better, criticizing smallness programs before the reforms, especially the small cement plants spread about the country. About the same time I happened to meet the president of the American Manufacturing Association and CEO of a factory making machinery for chemical plants. I told him about the Chinese program of creating small cement plants and sought his opinion. “That is exactly what they should be doing” he said.

I wrote a long letter to my Chinese friends. I disputed every point in the article. Came a letter from them that they wanted to publish my response. Would it be ok if they included the references to the individual? I replied, no problem.

Clearly, I am an ignoramus about Venezuela. Nevertheless, I have a general view. Worship of bigness and heavy over light industry is bad. At the same time. One should not dismiss big factories out of hand, nor the crucial importance of heavy industry. There can be need for them. The balance depends on various factors: location of resources, balance of various machines which calls for bigness, the large needs for equipment needed by very many collectives, the strategy of the overall plan, etc.

Let me end this megillah to express the deep, deep pleasure at the way things go in Venezuela, the energetic tackling the evils of capitalism. If I were ten or twenty years younger I’d fly to Caracas, and ask for an assignment, including polishing Chavez’s shoes.

Finally, if available I’d like to see the whole talk you gave to the students.

Abrazos,
Harry