|
Article Excerpt
NEWLY ELECTED PRESIDENT BARACK OBAMA FACES THE THANKLESS TASK OF RESCUING the key financial and productive institutions of American capitalism, reforming and strengthening international financial institutional arrangements, extricating the country from two hot wars and countless worldwide military entanglements, and putting in place a non-carbon energy architecture sufficiently robust to save the planet from a meltdown. Many of these underlying issues form the substance of contributions to this edition of Social Justice. President Obama must also restore the image of the United States, which was badly tarnished by the Bush administration's abandonment of the Geneva Conventions, the rule of law, and multilateralism, all of which were compounded by extra-constitutional abuses of power at home. To introduce meaningful change that "we can believe in," Obama must take on a powerful financial oligarchy, the energy monopolies, and the military-industrial complex. Much has already been accomplished, but unless he changes course, his two greatest mistakes may be his management of the banking crisis and his expansion of the war in Afghanistan to Pakistan, programs begun under George W. Bush, but which are acquiring Obama's imprint as time passes.
Obama's presidency represents a period of transition, a new departure conditioned by the worst economic crisis since the 1930s and an impending restructuring of U.S. and global capitalism. Statements that a year ago would have seemed hyperbolic have become the new common sense. Former Federal Reserve chairman Paul Volker referred to measures to treat the current crisis as a revolution, the destruction of a world financial Potemkin village. John Gray, professor of European Thought at the London School of Economics, declared the financial crisis to be the American equivalent to the fall of the Soviet Union. And U.K. Prime Minister Gordon Brown described the wrenching economic devastation as "the birth pangs of this new global order," and at the Group of 20 (G-20) summit in April 2009 added that "the old Washington consensus is over." The crisis is serious and probably worsening. The IMF announced that global growth would slow below zero in 2009. Given the slowdown and the squeeze on worldwide investment, the International Labor Organization says the number of unemployed workers in the world could reach 230 million in a worst-case scenario (Asahi Shimbun, 2009).
Such moments hold the potential for dramatic shifts in the relative position of the Great Powers in the international system of states, as well as within the political classes commanding the levers of power within nations. The Great Depression of the 1930s represented the terminal crisis of British dominion over the world economy; the U.K.'s political influence slipped worldwide, as the United States gained ascendancy. Meanwhile, it took a world war to reverse high unemployment rates (24.9% of the labor force in 1933) and the trend of cascading bankruptcies that had paralyzed Franklin D. Roosevelt's America.
Such moments also hold the potential for tectonic shifts in the dominant ideology. For instance, the Great Depression discredited social Darwinist premises and the eugenics movement, along with the conservative business and academic elite that promoted them. The idea that biologically inherited traits determined economic success was completely debunked by the Depression, which devastated the lives and prospects of rich and poor alike. Today's crisis has similar overtones for conservative policies of explicit favoritism toward the rich, malignant neglect of public institutions and a bias against public regulation, outright malfeasance, and the rampant privatization of public-sector institutions, from water systems to prisons/immigrant detention and the U.S. military. The spectacular systemic collapse brought about by the financial sector forever discredits the argument that the naked pursuit of self-interest is synonymous with the general welfare. With the state having to bail out the megabanks and icons of U.S. corporate capitalism such as General Motors, the neoconservative project, initiated in the Reagan/Thatcher period, has proved to be as bankrupt as the model of capitalism it promoted.
Economic measures taken to counter crises can produce unintended consequences. Franklin D. Roosevelt (FDR) lacked strong instincts about racial injustice (to say the least, given his imprisonment of Japanese-American U.S. citizens in concentration camps). He consistently appeased the Jim Crow South, infuriating black leaders by tolerating blatant discrimination by New Deal agencies and refusing to back legislation against lynching. Indeed, Roosevelt's New Deal, by industrializing and enriching the South and West without revolutionizing these regions in terms of racial injustice, empowered the most reactionary conservatives in the U.S., allowing them to eventually set the national political agenda. Lyndon Johnson's commitment to civil rights became a pretext for the South to embrace the Republican Party and become the keystone to the political dominance of right-wing presidencies from Nixon through George W. Bush (see Lind, 2005). The agenda of triumphant southern conservatives and their allies in other regions came to dominate national politics: a low-wage society with weak parties, weak unions, and a political culture based on demagogic appeals to racial and ethnic anxieties, religious conservatism, and militaristic patriotism (Ibid.: 285). Barack Obama's successful presidential run promises to break that pattern and introduce a new civility in the national political culture.
The Global Crisis and the Response
Until the meltdown of September 16, 2008, when the world financial system ground to a halt, the Bush administration had stumbled along in the belief that it had a subprime crisis on its hands, not a full-fledged financial crisis. But the collapse of the financial bubble was an epiphenomenon of a more deep-seated structural malaise affecting the economy. This crisis emanated first from Wall Street, then to London's financial sector and into the periphery, as highly leveraged firms became insolvent and the world financial architecture effectively collapsed. Underlying the financial panic was the fact that the debt-based model of consumption (and, conversely, of production) driving world economic growth had become unsustainable. So, too, had the policy of managing serial bubbles, which for decades produced fabulous, if ephemeral paper wealth for many and real fortunes for a few, but also endemic crises--roughly one every 2.5 years (Summers, 2009: 8)--across multiple continents simultaneously. The term financialization encapsulates a three-decade process in which the finance, real-estate, and insurance sector overtook manufacturing by the 1990s and then surged past it as a share of the U.S. gross domestic product (GDP). Historically a sign of late-stage debilitation of world economic powers, the phenomenon has been "marked by excessive debt, great disparity between rich and poor, and unfolding economic decline" (Phillips, 2006: 268). Former Republican strategist Kevin Phillips (2008, 2006) and the Monthly Review's John Bellamy Foster and Fred Magdoff (2009) provide excellent book-length treatments of this subject, so only a few points require comment here.
After 1987, the United States became the world's principal debtor. Throughout the Bush years, all U.S. debt--national, international, financial, corporate, and household--maintained a record-setting pace. In the process, most Americans personally became spectacularly unsuccessful accumulators of wealth while drowning in a sea of goods made in China for Wal-Mart credit-card purchases. Before the financial meltdown, personal consumption--prodded after September 11 by exhortations to fiscal patriotism--comprised over 70% of U.S. GDP (in contrast to just under 60% in Japan, 57% in Germany, and 35% in China), a rate President Obama and U.S. consumers now know was unsustainable (see Abate, 2009; LaFraniere, 2009). Bloated health-care costs diminished household incomes, increasing indebtedness and reducing workforce productivity. College tuition more than quadrupled after 1982, with many universities financing their growth by escalating student debt (Bearer-Friend, 2008). A broken educational system failed to produce sufficient numbers of the technical-professional personnel needed for the high-tech corridors along the East and West Coasts.
Discussion of a national industrial policy, initiated in the 1980s by high-tech companies, was settled in favor of the financial sector by a biased federal policy that offered it high-level access, strategic bailouts, and extremely low interest rates to feed its casino mentality toward leveraging capital. Bill Clinton opened the floodgates to financial-sector contributions to the Democratic Party. His centrism moved the party away from traditional Democratic constituencies such as labor and minorities, and favored policies promoted by Wall Street types such as Treasury Secretary Robert Rubin over structuralists like Labor Secretary Robert Reich, who advocated industrial policy. The financial sector's ever-climbing share of GDP, proximity to power, and massive lobbying efforts resulted in the dismantling of the regulatory framework designed to protect the public in relation to financial institutions. In the last decade alone, it invested five billion dollars in campaign contributions and lobbyists to bring about deregulation (Sirota, 200%).
The debt-and-credit industrial complex that emerged did so at the expense of manufacturing, including the high-tech sector after its 2000-2001 fall. To be sure, the United States remains the world's leading manufacturer by value of goods produced, hitting a record of $1.6 trillion in 2007. For every $1.00 of value produced in China's factories, the United States generates $2.50 (Manning, 2009). But by 2004, 40% of all corporate profits in the United States came from the financial sector, compared with only 10% from the manufacturing sector (Phillips, 2006: 284). U.S. firms moved to high-end manufacturing in pursuit of higher profits. In part, that meant adding financial services. General Motors expanded GMAC as its finance arm in the late 1960s, and General Electric, which makes energy products such as gas turbines for power plants, spun off GE Capital, which generated 42% of group profits in 2000. Agribusiness became a factor in energy production and firms such as Intel became an integral part of the military-industrial complex, which sold $200 billion worth of aircraft, missiles, and space-related equipment in 2007 (Manning, 2009).
The pursuit of higher profit rates has meant shedding industries with high wages, pensions, and good benefit packages (such as unionized autoworkers). A measure of the offshoring of American jobs is that U.S.-based transnationals increased the share of U.S. company profits from overseas business from 26% to a record 37% in the past two years (Cooper, 2008). The net effect of financialization on the U.S. workforce has been a narrowing of the country's employment base, restricted distribution of the financial sector's concentrated profits to a much smaller proportion of the population (Phillips, 2006), a declining share of the national income going to labor (with a corresponding undermining of aggregate demand), and a loss of clout for labor's representatives--a key component of Roosevelt's New Deal coalition--in Washington. (1) A long period of absence ended when President Obama invited labor leaders to a White House ceremony in early 2009.
President Obama's presidency already reflects the economic contradictions of the forces that helped him get elected. William Greider asks whether Obama is "trapped between the governing elites who decide things and the people who are governed." The president must balance the interests of the Democratic coalition. On one side are stakeholders such as the entertainment industry, venture capital, which favored the Democrats by a margin of three to two in the 2000 presidential campaign, and investment banks and other megabanks clustered geographically in Democratic strongholds, which since 2002 have strongly favored Democrats over Republicans in campaign funding (Lind, 2005: 282; opensecrets.org). A counterforce in his coalition is the emerging majority of people of color, women, and youth that invigorated his campaign and offer an alternative to elite control of both major parties.
Although Obama does not like the word "redistributionist," his tax cuts and budget reflect the essence of his market-oriented redistributive philosophy. They seek to begin to close the gap created by a 30-year trend of rising inequality in incomes and wealth (Leonhardt, 2008). With profits stagnating in industrial enterprises worldwide and the shift...
|
