Nicholas Hildyard, writing for The Corner House (March 1998), pointed out the phony nature of most of what passes for “privatization” under neoliberalism:

While the privatisation of state industries and assets has certainly cut down the direct involvement of the state in the production and distribution of many goods and services, the process has been accompanied by new state regulations, subsidies and institutions aimed at introducing and entrenching a “favourable environment” for the newly-privatised industries.

Director Sean Gabb of the Libertarian Alliance made a similar point about the kind of “privatization” promoted by vulgar libertarian think tanks like the Adam Smith Institute.  The ASI, he wrote in Free Life Commentary (July 3, 1998), “sells market solutions to statist problems.”

An Adam Smith Institute report… will look at the technical questions of how to privatise – at what the shape of the new private activity ought to be, at what special interests need to be conciliated, and so forth. And the report will often only sketch out the details of a proposal that will be fully explained in direct consultancy with a company or ministry….

The old statism was at least mitigated by incompetence. The people in charge of it were paid too little to feel really important; and much of their energy was absorbed in disputes with stupid or malevolent union leaders. They presided over a system that was never very strong, and that failed to weather the storms of the 1970s.

As reconstructed in the 1980s – partly by the Adam Smith Institute – the new statism is different. It looks like private enterprise. It makes a profit. Those in charge of it are paid vast salaries, and smugly believe they are worth every penny….

But for all its external appearance, the reality is statism. And because it makes a profit, it is more stable than the old. It is also more pervasive. Look at these privatised companies, with their boards full of retired politicians, their cosy relationships with the regulators, their quick and easy ways to get whatever privileges they want….

As with National Socialism in Germany, the new statism is leading to the abolition of the distinction between public and private. Security companies, for example, are being awarded contracts to ferry defendants between prison and court, and in some cases to build and operate prisons. This has been sold to us on the – perfectly correct – grounds that it ensures better value for money. But it also involves grants of state powers of coercion to private organisations. All over the country, private companies are being given powers of surveillance and control greater than the Police used to possess.

….There has been no diminution in the economic power of the State, only a change in its mode of operation….

With all that by way of preface, you can imagine my reaction when I came across a paper, titled “Against the mainstream:  Nazi privatization in 1930s Germany,” by Germà Bel of the University of Barcelona.  Here’s an excerpt:

The Great Depression spurred State ownership in Western capitalist countries. Germany was no exception; the last governments of the Weimar Republic took over firms in diverse sectors. Later, the Nazi regime transferred public ownership and public services to the private sector. In doing so, they went against the mainstream trends in the Western capitalist countries, none of which systematically reprivatized firms during the 1930s. Privatization in Nazi Germany was also unique in transferring to private hands the delivery of public services previously provided by government.

Bel argues that one of the political aims of the privatization initiatives was to win the support of the German industrialists–or as Sidney Merlin put it in a 1943 paper quoted by Bel, “facilitate the accumulation of private fortunes and industrial empires by [the regime’s] foremost members and collaborators.”

Along the same lines, Joseph Stromberg once argued by private email, based on his reading of Behemoth (by the Frankfurt School’s Franz Neumann), that the autarky of Fortress Europe wasn’t the Nazis’ goal at all.  It was simply

a temporary way around the Anglo-American ownership of the monetary system, etc.  As they conquered territory, the Nazis extended their model of state-capitalism into the new areas.  I suppose we could credit them with an early model of top-down globalization….  Not much different than the American model: tariffs until you control the overseas assets, then ‘free trade.’

Had the Axis won, they’d no doubt have created their own version of the Bretton Woods agencies and the UN Security Council, and made the Deutschmark into a global reserve currency.

Neumann and the rest of the Frankfurt School described, as the aim of fascism, to transcend the internal contradictions of capitalism, in much the same way that Immanuel Wallerstein argued the feudal ruling class transcended the internal contradictions of feudalism.  According to Wallerstein, a subgroup of the feudal ruling class reconfigured themselves as agrarian capitalists, and negotiated the transition to capitalism, setting themselves up as the core of the new ruling class over a new social system.  Similarly, Wallerstein speculates, a section of the capitalist ruling class may attempt to survive the collapse of corporate capitalism from its internal contradictions, by setting themselves up as the ruling class of a post-market collectivist society.  That’s exactly what fascism attempted to do, according to the Frankfurt School:  to create a post-capitalist, or at least post-market, society under the control of the biggest finance capitalists.  The capitalists, in the Frankfurt School scenario, attempt to transcend the law of value and mediate an increasing share of economic transactions directly through the state rather than the market price system.

Perhaps not coincidentally, the tendency of neoliberal capitalism over the past few decades, despite all the “free market” rhetoric, has been to socialize an ever-increasing share of the operating costs of business, and to insulate big business increasingly from market competition through a draconian “intellectual property” (sic) regime.  Besides the war economy and the military-industrial complex, the internal security state and the prison-industrial complex have grown by leaps and bounds.  Consider the irony of Dick Cheney, of Halliburton fame, pontificating that “the government never made anybody rich.”  We have been evolving, in recent decades, to a system of power in which the bondaries between the corporation and the state are increasingly a legal fiction, and the corporate capitalists administer the economy from their position at the helm of the state.

The main difference between what the Nazis aimed at, and the neoliberal policies pursued in the Anglosphere, is that “free market” rhetoric serves a useful legitimizing function for selling the latter.  The Germans, who pursued a similar (if more extreme) model of corporate welfare statism and crony capitalism, were relieved–thanks to a different political culture–of the necessity of disguising their corporatism.

Kevin A. Carson

free.market.anticapitalist@gmail.com

The conventional wisdom, among the punditocracy, is that a major part of any Obama stimulus package will be large-scale funding of “infrastructure.” To maximize the bang for the buck, to have a rapid effect on unemployment numbers, and to get the money into people’s hands quickly, it’s anticipated that such spending will likely go to any “shovel-ready” project. This notwithstanding Obama’s promise that the stimulus package would contain no “earmarks” or “pork barrel spending.” I get the impression most of the commentariat don’t even perceive the two commitments as a source of possible conflict.

Typical is Robert Kuttner of the Boston Globe (Dec. 25), who exhorts us to “fight the naysayers” who will resist any such stimulus package:

Others contend that government is not capable of spending large sums efficiently in short order. “It’s … hard to spend $700 billion quickly,” says New York Times columnist David Brooks. “If you’ve got a tiddlywinks hall of fame, they’re going to fund that thing.”

Excuse me, but state and local governments and school districts are likely to suffer a revenue shortfall approaching $200 billion by next year. All the federal government has to do is write a check to cover that amount, and not a single policeman, firefighter, teacher, or first-responder need be laid off; not a single human service office closed; and not a single public project deferred.

These are not new projects that take time to conceive and plan. This is about preventing layoffs and shutdowns of existing public services.

It’s hard to figure out what Kuttner thinks some of the “shovel-ready” projects are, if not the moral equivalent of tiddlywinks halls of fame.

Just who does Kuttner think has played the major role in approving, planning and prioritizing all those “shovel-ready” local projects, anyway? Local government is notorious for being a showcase property of the local real estate developers.

Tulsa blogger Michael Bates (Batesline blog) coined the term “Cockroach Caucus” to describe the good ol’ boy network in the City Council and Chamber of Commerce, whose main function is to subsidize the automobile highway complex and suburban sprawl, and promote the inflation of real estate values. Bates described the Cockroach Caucus as “the tight social network that has run local politics for as long as anyone can remember.”

This network… has pursued its own selfish interests under the name of civic progress, with disastrous results for the ordinary citizens of Tulsa and its metropolitan area….

The Cockroach Caucus is most recently infamous for convincing state and local elected officials to pour $47 million in public funds into Great Plains Airlines….

The Cockroach Caucus has wasted tens of millions in public funds on failed economic development strategies…., and has bent and sometimes broken the rules of the land use planning system to favor those with political and financial connections. The same small number of connected insiders circulates from one city authority, board, or commission to another, controlling city policy, but beyond the reach of the democratic process.

Sound familiar? You’ve probably got a Cockroach Caucus running your own community. I know I do.

Harvey Molotch, a “power elite” sociologist in the tradition of C. Wright Mills, calls them “Urban Growth Machines.” The main purpose of these coalitions of local governments, chambers of commerce and real estate agencies is to gorge themselves on billion-dollar slop at the public trough.

The Growth Machines’ approach to local economic development, like that of the federal government to industrial bailouts, is a living illustration of Einstein’s dictum: “It’s impossible to solve a problem with the same kind of thinking that created it.”

Take my hometown of Springdale, Arkansas. The Springdale Chamber of Commerce recently unveiled its long-term master development plan for the community. By way of background, the main economic development in Benton County (to our north) the past decade or so has been in a high-end shopping district: Pinnacle Hills Promenade, on the western edge of Rogers. In 2006 Springdale voters approved, and in 2007 the city built, a corporate welfare baseball stadium (Arvest Stadium), and recruited a baseball team (formerly the Wichita Wranglers). The Chamber’s master plan involves turning the area around Arvest Stadium into another high-end district on the Pinnacle Hills model.  Like the Promenade and the NWA Mall in Fayetteville (to our south), the new ballpark shopping district is expected to support 750,000 feet of retail shopping and several dozen stores.

Meanwhile, after Obama’s election sparked hopes for a massive program of infrastructure spending, local government and business elites expressed hopes for federal funding of the long-coveted “Western bypass.” Again, by way of background, twenty years ago the region built Hwy U.S. 471, itself a western bypass intended to relieve congestion on the old U.S. 71 that ran through the centers of all the major cities of NW Arkansas on a north-south corridor. And guess what? As anyone but an urban planner or traffic engineer might have predicted, the new subsisized highway didn’t alleviate congestion at all! Instead it generated new congestion, filling up with new traffic from the new subsidized subdivisions and strip malls that grew up like mushrooms at every single exit. And assuming that previous patterns persist, the new bypass, even further to the west, will generate even more congestion as it fills up with traffic from the new sprawl along its route. Of course, the looming depression or Peak Oil, or both, could make the issue moot by destroying the local construction industry and slashing car use–in which case the new highway, if they even manage to complete it, will be a white elephant.

And just about every week, Springdale’s newspaper (The Morning News of Northwest Arkansas) runs another editorial to the effect that the Third District Congressman’s main duty is to bring home highway pork (excuse me, “infrastructure funding” to promote area “economic growth”). See, Wal-Mart, Tyson, J.B. Hunt, and Jim Lindsey and Associates Realtors own this area; they just let us live in it.

Anyway, multiply that local mendacity a thousandfold or so, and you’ve got some idea of what will happen when the Cockroach Caucuses and Growth Machines across our great land are given a bundle of free money for their “shovel-ready projects.” Hundreds of billions of dollars will be poured down a rathole, at the discretion of local good ol’ boy networks, to perpetuate the traditional local pattern of sprawl and car-worship.

Now, I don’t favor tax-funded subsidies to anything. But I could at least understand an infrastructure program aimed at expanding local public transit, and expanding the capacity of the national freight rail system, in order to bridge the gap when gasoline hits $12/gallon. I wouldn’t approve of it, but at least cushioning disaster would be a rational use for all that stolen money.

But folks, you know that ain’t gonna happen. Instead, they’ll probably wind up spending it on the same kind of priorities that got us in the mess in the first place, wasting resources trying to prop up the current system until it’s too late.

As a Bloomberg opinion piece put it (Dec. 24):

Missouri’s plan to spend $750 million in federal money on highways and nothing on mass transit in St. Louis doesn’t square with President-elect Barack Obama’s vision for a revolutionary re-engineering of the nation’s infrastructure.

Utah would pour 87 percent of the funds it may receive in a new economic stimulus bill into new road capacity. Arizona would spend $869 million of its $1.2 billion wish list on highways….

“It’s a lot of more of the same,” said Robert Puentes, a metropolitan growth and development expert at the Brookings Institution in Washington who is tracking the legislation. “You build a lot of new highways, continue to decentralize” urban and suburban communities and “pull resources away from transit…”

“A whole lot more of the same.” Sigh.

That’s the problem with liberals’ faith in the state as a tool for promoting the “public good” and “general welfare.” They haven’t looked closely enough at how the sausage is made.

–Kevin A. Carson

free.market.anticapitalist@gmail.com

The Senate Republicans have made it clear they have no principled objection to bailouts.  As The Freeman editor Sheldon Richman pointed out, if they’d been motivated by free market principle, they would have just refused a bailout–period.  But instead, they demanded a rewrite of the House version because it wasn’t tough enough on auto workers. (Free Association blog, Dec. 13, 2008).

Richman cited a Wall Street Journal editorial of the same day that celebrated the extortion as “Mitch McConnell’s Finest Hour.”   Shocked?  I didn’t think so.

What’s really amusing is the WSJ editors’ obliviousness to their own self-contradiction.  Using the bailout as leverage to extort lower wages, in WSJ parlance, is “reform” and “discipline.”  See, it was all about making auto workers “show they were serious about making Detroit competitive again.”

No bailout will ever restore the car companies to profitability without a restructuring. Yet an explicit UAW goal is to use the bailout to avoid any such thing. The union and their Democratic protectors want to avoid the discipline that a bankruptcy could impose under Chapter 11.

On the other hand, imposing discipline on anybody besides auto workers is blackmail.  A bailout, the WSJ complains, “would also give environmentalists huge leverage over the cars Detroit builds, a power they and Democrats have wanted for decades.”

And the senior executives were mentioned in the WSJ editorial only as victims:  “the long line of Detroit executives… caving to the UAW…”

As Dean Baker pointed out in regard to a similar Washington Post celebration of the wage cuts,

For some reason, the Post attaches enormous importance to reducing the pay of auto workers who earn $28 an hour. It shows no comparable concern for reducing the pay of auto industry executives to parity with their foreign competitors. (The top executives at Toyota, Honda, and other successful companies get paid in the neighborhood of $1-2 million a year. Unlike their U.S. counterparts, they don’t get paychecks in the tens of millions of dollars even in the best years.) The Post has also never felt the need to insist on large pay cuts for Wall Street executives even though their banks are now wards of the state. (Beat the Press blog, Dec. 20, 2008).

And with all that talk of “restructuring” for “competitiveness,” any talk of changing the Detroit dinosaurs’ business model was notable for its absence.  As Bill Wadell and Norman Bodek described it in The Rebirth of American Industry, the Alfred Sloan management accounting system treats inventory as an asset, and labor as the only signficant direct cost.  So despite all the lean talk and the superficial adoption of lean methods on the shop floor, GM still produces cars to sell to inventory without regard to current orders for them, and treats human capital as a variable cost to be downsized whenever business fluctuates.  But management salaries are treated as a fixed cost, and swept under the rug through the practice of “overhead absorption” (incorporating them into the price of the cars sold to inventory, so they are magically reclassified as an asset).

So there you have it.  In what passes for “free market” thought among Republican politicians and neoliberal hack journalists, “restructuring” is good if it means rolling back union wages and benefits, but bad if it means abandoning the gas guzzling business model that put Detroit in the tank.  Government-imposed discipline is good and pro-market only if it’s aimed at labor, and not capital or management.

More generally, I think this highlights the problems of equating “capitalism” to “the free market.”  In neoliberal orthodoxy, supposedly, labor and capital are just coequal “factors of production.”  So why name an economic system after one of the factors of production, in particular?  What we’re seeing is that, beneath the ideological veneer of “free contract” and all the rest of it, some “factors of production” are more equal than others.  That’s why, when Costco pays its workers above-average wages for the retail industry, business analysts squirm with the same undisquised moral disapproval that some people reserve for diamond-studded dog collars.  But when a Bob Nardelli or Carly Fiorina gets a retirement package worth tens or hundreds of millions, after gutting their companies to massage the quarterly numbers and game their own bonuses and stock options, that’s just the way “our free enterprise system” rewards them for “the value they created.”

What the politicians and journalists are for, behind all the “pro-market” rhetoric, isn’t the market at all.  It’s the interests of capital.

What we need is the genuine article:  a free market without special privileges or artificial scarcity, without subsidies and corporate welfare, and without market entry barriers and other protections against competition.  Of course, if we had that kind of free market, there wouldn’t even be a General Motors.

According to Daniel Denvir (AlterNet, December 15), Ecuador’s president announced in early December that his country would not be paying the interest on its foreign debt in 2009, repudiating it as “illegal.” The value of the bonds defaulted on amounts to 19% of GDP.

As the Australians would say, good on them. Denvir quotes a statement by the Confederation of Ecuadorian Kichwas (ECUARUNARI), part of the country’s indigenous peoples movement: “We have not acquired any debt. The so-called public debt really belongs to the oligarchy. We the peoples have not acquired anything or been benefited, and thus we owe nothing.”

That’s entirely correct. In the specific case of Ecuador, according to John Perkins (Confessions of an Economic Hit Man), the loans were designed to foment conditions that make [Ecuador] subservient to the corporatocracy running our biggest corporations, our government, and our banks.” Infratructure loans were granted on the condition that “engineering and construction companies from our own country must build all these projects. In essence, most of the money never leaves the United States; it is simply transferred from banking offices in Washington to engineering offices in New York, Houston, or San Francisco.”

More generally, as described by Bruce Rich in “The Cuckoo in the Nest” (The Ecologist, Jan./Feb. 1994), the World Bank over the past sixty years has nurtured the growth of technocratic complexes within Third World governments, insulated from outside political control, which parrot the assumptions and goals of the World Bank.

From the 1950s onwards, a primary focus of [World] Bank policy was “institution-building”, most often taking the form of promoting the creation of autonomous agencies within governments that would be continual World Bank borrowers. Such agencies were intentionally established to be independent financially from their host governments, as well as minimally accountable politically–except, of course, to the Bank.

The World Bank created the Economic Development Institute in 1956 specifically to enculture Third World elites into the values of the Bretton Woods system. It offered a six-month course in “the theory and practice of development,” whose 1300 alumni by 1971 included prime ministers, ministers of planning, and ministers of finance.

The creation of such patronage networks has been one of the World Bank’s most important strategies for inserting itself in the political economies of Third World countries. Operating according to their own charters and rules (frequently drafted in response to Bank suggestions), and staffed with rising technocrats sympathetic, even beholden, to the Bank, the agencies it has funded have served to create a steady, reliable source of what the Bank needs most–bankable loan proposals. They have also provided the Bank with critical power bases through which it has been able to transform national economies, indeed whole societies, without the bothersome procedures of democratic review and discussion of the alternatives.

These complexes of World Bank and native government technocrats operate this way even when the government is nominally democratic; but for decades the World Bank enthusiastically pursued such policies even (or especially) within military dictatorships (often installed by the U.S., back in the days before the neocons discovered the virtues of “democracy”).

Their main function is to work in collusion with the World Bank to run up debt building the infrastructure foreign capital needs for profitable investment.  A majority of World Bank loans since that agency’s inception have gone to building the roads and utilities necessary to support foreign-owned industry.  The effect is to crowd out decentralized, small-scale, locally-owned industry serving local markets, and to integrate the domestic economy into a neoliberal framework of providing raw materials and labor for foreign industry.

The resulting debt (which the people of the country never approved) can then be used to further cement neoliberal policies, by blackmailing the local government into adopting a structural adjustment program.  And the policies adopted under such programs generally include the “privatization” of the same infrastructure the loans were taken out to build, and selling it to the very people it was built to serve.  Not only that,  but the “privatization” is generally arranged on terms virtually dictated by the purchasers, with native governments sometimes spending more taxpayer money to make the assets salable than the sale actually fetches.  And, naturally, the purchasing companies’ first order of business after such transactions is generally asset-stripping, with revenues from the sale of assets often exceeding the total purchase price.

In other words, Third World countries are borrowing money to buy the rope to hang themselves with.

Here’s hoping that Ecuador’s debt repudiation is the first of many more to come, and that the Third World declares its own jubilee in 2009 without waiting for permission from Bono.

In this study, Kevin Carson asserts that the existing capitalist economic system is a result of State industrial policy suppressing libertarian alternatives. That status quo, however, is unsustainable according to Carson. Getting government out of the way would unleash market forces to birth a “neotechnic” economy of previously unmatched prosperity.

Download: Industrial Policy: New Wine in Old Bottles

Industrial Policy: New Wine in Old Bottles

I. The Unsustainability of the Existing System
II. The Seeds of the New System
III. What Stands in the Way