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Commentary :: Social Welfare
Against Market Radicalism
06 Aug 2018
Capitalism is not "the end of history" as the American Francis Fukuyama postulated in 1992. The system question is open! What seems rational in micro-economics collides with the irrationality of maximizing profits as an end-in-itself.

Challenges for Economic Theory and Left Economic Policy

By Christa Luft

[This 2018 study is translated abridged from the German on the Internet,]

Where should left policy press so the economy will again be engaged by society and be subordinated to the German Basic Law? Polanyi gave us a keyword for this: overcoming the market society. Money, labor, land and property, according to Polanyi, should be withdrawn from the market and publically regulated. That would be a second “Great Transformation.”

For me, an entry lever for a fundamental change of society lies with political relations with land and property and in a new social land readjustment. Raising the top tax rate, amending the inheritance tax, increasing the minimum wage and much more – these are all urgent and indispensable left social-political demands. They could bring gradual social improvements. However, they will hardly change anything in the property-, distribution- and power relations of society…

Whoever wants to change at the root and not only lessen injustice or repair conditions cannot pass by dealing with natural resources in a new social land system. Taking land out of the market, according to Polanyi, is equivalent to its assimilation in certain institutions like housekeeping, cooperatives, factories, community, school, church, parks, conservation areas and so on…

Why is Polanyi’s focus on land and property? Land is a limited, available geo-resource that is not reproducible. It is a foundation of life and asset of all the people. No one can be excluded from it. No one’s access can be made hard through restraining conditions. A social land system must guarantee this. Amending the land law is overdue for humanizing life together. Land is not a commodity like every other that is producible according to need by human labor or that one can renounce. By its nature, land is common property and does not belong in private ownership. So social controls could be made possible and speculation prevented. The latter leads to skyrocketing land prices as we can see everyday. The price of house building hits the roof with rent explosion and renter displacement as the consequences…

“The command of social use is a guideline for the legislator to pay attention to the well-being of the general public and not only an instruction for the owner’s conduct. This is a rejection of a property order where the individual interest has an absolute priority over the interests of the community.”

50 years ago, there was a serious attempt to emphasize social criteria and counteract the expansion of the social chasm in Germany by reforming the land law. However, this failed. Since then, politics has been silent on this theme… Public-private partnerships to finance infrastructure projects were always sources of losses for the public authority and proved to be goldmines for private funders, particularly for banks and insurance companies.

Secondly, Germany’s chronic balance-of-payment surplus means on one hand exporting unemployment and harming Germany’s future-friendliness. Balance of payment surpluses are capital exports while massive investment gaps open up… The budgetary financing of health insurance was loosened and businesses could increasingly evade social responsibility. They collect sumptuous subsidies and simultaneously pay their managers obscene bonuses… The argument of the German government that surpluses should not be criticized politically is not convincing.

High export surpluses increase corporate profits but diminish the overall social welfare… The solution can only lie in a wage-based growth concept oriented in the domestic market and an investment- and import-offensive.

Thirdly, German arms exports to trouble-spots have hit record levels… How many jobs could have been created in the civilian sector if the 0065tremely capital-intensive arms production were scaled back and ultimately ended? The continuing destruction of human civilization and the devastation of the environment in the interest of maximum profit is a crime!

Fourthly, mammoth corporations collect public or tax funds for production in certain locations. In favor of shareholder values, they shift state manufacturing to more profitable foreign countries – with job losses at home. The latest example is the Siemens implosion. In 2016/17, its net profit amounted to 6.2 billion euros. It reached 6.13 billion euros export guarantees from the state… To counter such practices, a prohibition of mass layoffs in profitable businesses would be a first helpful step… Other criteria for judging and rewarding corporate managers other than the stock price and the stock market profit of the corporation are necessary. A legal framework obligating big businesses to calculate on the basis of a social cost-benefit estimate should be urged.

Fifth, the German economy booms – while Germany has the largest low-wage sector in Europe, marked by millions of precarious jobs and a greater wealth concentration than in other European countries. Growing parts of the national income land as profits with corporations and the rich. The economy serves the few, not the many…The European Central Bank recently reported Germany has the second greatest social inequality in the euro zone behind Lithuania. The wealth of the richest 1% is 22%; the poorer half has only grown 3%. Enrichment of the few is at the expense of the many…

The economy in general is a Babel of sin (Sundenbabel). Mistrust and critical distance grow. Yes, profit maximization is the absolute law of the capitalist production method (MEW 23). Production only happens for its own sake. Demand is produced by creating new needs. All this needs the severest criticism. At the same time, realizing business profits should not be equated with immorality and delegitimated.

Striving for business profits is not immoral. Denying workers a share in the profit is immoral, the unrestrained pursuit of profit, shifting the risk to others and endless commercialization of all areas of life. The residents of the DDR (East Germany) and the other real-socialist countries of the former eastern bloc show where contempt for business interest in profit leads.

Enlightenment about the divergence of micro-economic profit greed and macro-economic rationality must be part of the “economic literacy of the masses” in the sense of Pierre Bourdieu. The neoliberal dogma, micro-economic profit-striving leads automatically to macro-economic success, collides with empirical reality. In its emphasis on business success, the often contradictory relation between autonomous micro-economic decisions of market actors and the aggregate economic consequences is faded out by the mainstream economy, The micro-economic profit- and loss calculation does not consider that every business outcome has two components: individual performance and the social environmental conditions, the prerequisites of production (for example, the state of science and technology, education level of employees, infrastructure and so forth) . Service provision is only possible be cause of these conditions. Laws crafted by interest-guided politicians define how costs should be considered in the business calculation and what can be burdened society as external costs.

Above-mentioned developments are only evidence that micro-economic profit realization is the standard in capitalism and not the contribution of the economy to the common good, as ordered in the German Basic Law. Polanyi denounced profit greed and unfettered markets and predicted already in the 1940s that society would serve the economy instead of vice versa. He attracted little support. Today’s conditions confirm his warning. They are evidence for the powerful effect of neoclassical dogmas.

Year after year, tens of thousands in Germany and millions of intellectuals and future leaders worldwide went through the neoclassical school of thought. They are instructed in the uniform thought style of the economic mainstream. They hardly learn to critically question their discipline. Instead, they must be tormented by textbooks that present model tasks and model solutions – and suggest there is one truth. As graduates, they are involved in governments, parliaments, political consultation, media, economic enterprises, banks, parties, associations, national think tanks, international organizations and teams of advisors.

Thus, the political range of economic teaching is considerable. Regimentation and “managerialism” are typical and worrying tendencies of the mainstream economy. The “all-round available person” is recruited instead of the all-round educated person” corresponding to the Humboldtian ideal. The danger arises for democracy that peer pressure or tracking could come out of citizens even without their own awareness.

V. Polanyi’s Search for a Third Way between Capitalism and Socialism

Polanyi’s idea of removing “fictional goods” from the market is not identical with abandoning markets. The end of the market society in no way means for him the end of markets. “Markets will continue in different ways to guarantee the freedom of consumers:
to show changes in demand, to influence producer incomes and to serve as an instrument of economic accounting. But, they are no longer an organ of economic self-regulation” (Polanyi 1978).

Polanyi distinguishes between markets and market society with unfettered markets. He wants to “go beyond the self-regulating market by consciously subordinating markets to a democratic society (ibid). He turns against the notion that an anti-capitalist, socialist society could be defined and predicted mechanistically. He envisions a society with a plurality of forms of property and socialization and with democracy as a prerequisite.

For him, state and market are not antipodes. He was a pioneer of a third way between capitalism/ market radicalism and socialism although he did not use that term. His theme resembles what other authors later called “transformation in capitalism and beyond toward an alternative society” (Klein 2013). This argumentation could be outlined as follows: Capitalism as a society based on exploitation can ultimately be overcome and civilized and democratized with social state reforms. That would be an indispensable intermediate step. With Rosa Luxemburg, this could be called “revolutionary real-politics.” This would not be saving capitalism with transformation. For Klaus Blessing, transformation reflections are “dangerous pipedreams by the fireplace,” “figments of the imagination.” In the good-hearted sense, such ideas are politically naïve. In the malicious case, they are diversionary tactics packaged in dreams (red herrings) that maintain the system… Are the defenders of such ideas only politically naïve or are they following very different goals? Conspiracy theories are strong tobacco, I think.

Reservations against “transformation” are not only ideological in some leftist circles. They are also fed from personal experiences of what happened under this term in East Germany after the so-called turn. The change from the plan to a market economy was carried out as shock therapy with the greatest destruction of productive assets in peace time, with millions of unemployed, with radical exchange of elites and extensive incapacitation of the East German population.

Those old-fashioned, withdrawn or overcome by fear were thrown away. Those accepted by the population were no longer accepted in private and in public life…

The economy of the real-socialist DDR has something worth preserving. The land and property were not objects of speculation. Apart from small inheritances, income and wealth could only be gained through labor. No one could be excluded from access to vitally necessary public goods. The world of finance was the service provider of the real economy; the real economy was not its slave as today. Is a planned economy a relic of the real-socialist past to be rejected or a creative method indispensable for the future and for efficient relations with natural resources and work capacity? (Translator’s note: The Office of Technology Assessment was created by Nixon in the US and should be revived.) Whoever raises these questions is regarded as nostalgic or a diehard.

Economists including myself grapple critically or self-critically with real-socialist praxis after 1990. No one sees a blueprint for future economic organization there since real socialism had a basic problem with the motivation and stimulation of people and economic efficiency. Still, it is more than a footnote in history. It represents the attempt at a social alternative. A transformation strategy cannot pass by its weaknesses and its advantages.

Karl Marx was convinced of the necessity of a socialist revolution… He knew about the immense destructive potential of capitalism and its flexibility. His assumption that capitalism would destroy itself because capitalist expropriate one another was not fulfilled. “Expropriate the expropriators” was his call. This cannot be surprising. In his time, there were no analyses or practical experiences that could serve as tests for the fitness and realizability of visions and concepts aiming at socialism. Forging his sentences and views into stone for eternity irrespective of the time and circumstances of their origin would certainly not have pleased the critical thinker Marx. He would have recommended further critical thinking…

The relation between the production of goods and the needs to be satisfied should be brought about directly in a planning process…

VI. Market Economy without Capitalism

In some left circles, Paul Mason (2016) speaks of “socialists of the old school.” State or plan and market are dogmatically opposed up to today and the market is made taboo as an element of an efficient economy…

For Karl Georg Zinn, the assumption “that a reform of the Soviet planned economy along the lines of a market socialism could prevent or at least delay the material and moral implosion of the USSR seems plausible. Capitalist elements could be implemented in a socialist economy without importing all the evils of capitalism. Capitalist inclusions could be advantages in socialism” (Zinn 2015)… What was described as a “planned economy” was a controlled state control that ultimately prevented a systematic development of the economy…

VII. Changing Course Begins in the Head. A Challenge for Economic Theory

American Nobel Prize winner John Kenneth Galbraith said: “Some one who is only an economist and renounces on social and political reflection has no real significance for the world.” The paradigmatic narrowness in economic curriculum at the universities and academies must be overcome… A political economy is needed that starts from a social relation of the economy and is not reduced to company logic. Economic theory needs a paradigm shift in order not to congeal in unworldliness or escapism and make misjudgments or false orientations.

Ending the dis-embedding of the economy from society, from its political, social, ecological, cultural, historical and democratic foundations is vital. In other words, the economy should be re-embedded in society. Economic data must be analyzed as social relations and not only as quantitative connections suited for model calculations. An academic school that wants to have a practical value and is not satisfied with itself must make the question about the meaning of the economy its foundation and starting point. Does the economy serve people and the environment or profit maximization at any cost? Does the economy have a social and ecological function – or does it only follow self-interest?...

The economic everyday in real capitalism is far removed from the German Basic Law. Its observance cannot be left to the taste of individual entrepreneurs or managers. Apart for exceptions, social and ecological interests are only voluntarily considered when they see a long-term chance for higher profits.

What seems rational and logic al in micro-economics is often counter-productive, socially-destructive and burdensome to the environment in macro-economics. “Politics and society should use laws and rules, incentives and sanctions to encourage people to act and change their action and inaction so micro- and macro-economic striving for success become as equal as possible (Straubhaar 2011). This thesis is remarkable for an entrepreneur like Thomas Staubhaar. Holistic thinking and acting in the economy is a torso without resolution of moral-ethical principles. Economic ethics belongs in economic study. Personal management must put as much emphasis on social intelligence and competence as on professional knowledge.

Many of these problems are discussed in circles of economics. But, one should not have the illusion that anything will change in the short-term in Germany’s academic landscape. The obvious disgrace and embarrassment of neoclassicism has long had no pervasive influence on its dominant position in the academic realm and in most advisory groups of political institutions. A paradigm change can only be expected… when younger economists are ready to dare a nearly complete fresh start.

The revival of a political economy is necessary that is on the brink of extinction in the German academic economic landscape. At the moment, this has hardly any chance in the foreseeable future. The “vast majority” of orthodox mainstream economists hardly notice heterodox approaches (in the sense of a plurality of economics). The way out of this situation cannot be the mere replacement of one paradigm with another. The questions are much too complex for that. Stimulating discussion of different social science theories and methods is imperative. This is true for heterodox traditions in the economy like (post-) Keynesian, evolutionary or Marxist approaches and also for organizational- and economic-sociological perspectives… I think the original neoclassical axiom that public goods belong in state hands is worth keeping. Unfortunately, this has fallen below the radar because of market-radical neoliberal policy. That a person has to work for himself and his family and not only think and act altruistically is also worth keeping.

Capitalism is not “the end of history,” as the American Francis Fukuyama postulated in 1992 in a book with the same title. The system question is open! Jurgen Noffe (2018) said: “Nothing raises the system question as clearly as capital itself as long as working money is better than working persons and as long as an ever-smaller horde of large owners of capital and their helpers decide over the fate of the species.” Still, no one can predict when and how this will happen. A revolutionary upheaval cannot be expected soon given the political pecking order or hierarchy of power. Reforms aiming at overthrowing the system can and must be tackled. Mathias Greffrath names “offensive wage policy, offensive infrastructure policy, offensive education policy, offensive house building policy etc. The system can be driven to its limits with attacks on capital logic” (Greffrath 2017). This could happen in a longer transformational process through a mixed economy.
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