Reflections on the Crisis in the SWP

JANUARY 13, 2013 – 1. Richard Seymour is author of the widely read blog, “Lenin’s Tomb,” and a prominent member of the Socialist Workers Party (SWP), the largest group left of the Labour Party in Britain. In an article written in the days following the January 4-6 annual conference of the SWP, Seymour made public a controversy inside the party, a controversy so serious he says: “the future of the party is at stake”. Speaking of the party’s Central Committee he said: “they are on the wrong side of that fight”. Speaking to fellow members of the party, he wrote: “You, as members, have to fight for your political existence. Don’t simply drift away, don’t simply bury your face in your palms … You must fight now” (Seymour, 2013a).

2. China Miéville is a prolific author (Miéville, 2006, 2010, 2012) and another prominent member of the SWP. Like Seymour, he has publicly expressed concern about recent developments inside the party. There is, he says: “a terrible problem of democracy, accountability and internal culture that such a situation can occur, as is the fact that those arguing against the official line in a fashion deemed unacceptable to those in charge could be expelled for ‘secret factionalism’” (Cited in Penny, 2013).

3. The SWP has a student group on various campuses called SWSS (Socialist Workers’ Student Society). The SWSS group based at Leeds University released a public statement after the SWP conference, where it “condemns, in the strongest possible terms, the recent handling of very serious accusations against a leading member of the SWP Central Committee”. The Leeds SWSS group argues that: “an atmosphere of intimidation has been allowed to develop in which young members are viewed with suspicion and treated as such” and that there exists “a culture where members feel unable to raise disagreements” a culture which is the “opposite of the kind which should exist within a healthy revolutionary organization” (Leeds University SWSS, 2013).

4. In the days after these same events at the SWP conference, a full-time journalist working for Socialist Worker, the party’s weekly paper, announced his resignation from both his job and from the SWP. He described his reaction to the conference discussion that triggered his resignation as: “one of simple, visceral disgust. I was shaking. I still am. I did not know what to do. I walked out of the building in a daze” (Walker, 2013).

5. The SWP is the largest and most prominent organization in the International Socialist Tendency (IST). In the wake of the SWP conference, there was a public announcement by the IST organization in Serbia that it no longer wished to be part of the tendency. They pointed to what they saw as “a stifling party culture and regime” inside the SWP, and stated that four pre-conference expulsions represented “conduct that reflects bourgeois management techniques” (SWP’s Serbian Section Splits From IST, 2013).

I begin with these five points to indicate only one thing – there is a very serious crisis inside the SWP. What is the background to this crisis? The references that accompany this article, provide copious detail. Below is a short summary.

1. Two years ago at the SWP conference, there was a report to conference, concerning a personal relationship between a Central Committee member (a man) and a woman member of the party. It seemed, at the time, that what was involved was “an affair that was badly ended, with the accused merely hassling the person long beyond the point of propriety” (Seymour, 2013b). The situation, serious in itself, had apparently been resolved.

2. It was not. In 2012, the issue returned, this time with the Central Committee member charged with sexual assault. A committee of the SWP (Disputes Committee) adjudicated the matter, concluding that the charges were not proven.

3. Among the criticisms made of the process by which this decision was reached, was the very serious one, that at least some of the committee members were personally acquainted with the man accused.

4. While all this was ongoing, a second woman came forward with a complaint of sexual harassment, directed against the same member of the Central Committee.

5. In the run up to the SWP conference in January 2013, four SWP members, apparently all themselves former full-time employees of the party, were discussing, on a Facebook group, how to respond to this situation. For this, they were expelled from the party, as this, apparently, amounted to “secret factionalism”.

6. This then resulted in the formation of two formal factions, which garnered considerable support at the SWP conference. The positions of the factions – calling for a reversal of the expulsions and a review of the Dispute Committee’s decision – were voted down by the majority of the conference delegates. One of the votes, however, was by a quite narrow margin.

7. At the end of the conference, these factions were instructed to disband, as organizing “across branches” on these matters is only allowed in the SWP in the three months before conference. To continue to meet and discuss these matters is a breach of discipline, making members subject to expulsion.

8. However, the issue has not gone away. The Central Committee member involved, while now not a member of that body, is still apparently engaged in high profile party work. The controversy has now become the object of speculation and discussion in the mainstream press (Penny, 2013; Taylor, 2013).

What is at stake? There are two issues, one to do with women’s oppression, the other to do with left organizing. In terms of women’s oppression:

1. The charge of sexual assault is extremely serious. It is completely inappropriate to adjudicate such a matter by a committee some of whose members know the accused well. This puts the woman bringing the charges in a very painful, impossible position. It is an approach that will be repulsive to many in the movements.

2. The current radicalization – in Occupy, during the student strike in Quebec in 2012, in Idle No More, in the Arab Spring, in the extraordinary upsurge in India against rape – is leading to a welcome revival of feminism. A new generation of young people is rejecting the anti-feminism that was perpetrated by the right-wing during the years of the backlash, and reconnecting with and extending the traditions of women’s liberation from the 1960s and 1970s.

3. However, in the current crisis in the SWP, according to Tom Walker, “‘feminism’ is used effectively as a swear word by the leadership’s supporters” (Walker, 2013). Seymour says that “old polemics against ‘feminism’ from the 1980s, always somewhat dogmatic, are dusted off and used as a stick to beat dissenters with” (Seymour, 2013a). These old polemics were based on a stark counterposition of Marxism and feminism. Tony Cliff in 1984, for instance, wrote: “Two different movements have sought to achieve women’s liberation over the past hundred or more years, Marxism and feminism … There can be no compromise between these two views, even though some ‘socialist feminists’ have in recent years tried to bridge the gap between them” (Birchall, 2011, p. 467; Cliff, 1984, p. 7). This quite sectarian orientation in theory is being helpfully challenged from within the Marxist tradition (Bakan, 2012; Ferguson, 1999, 2008; Smith, 2012).

In terms of left organizing:

1. The expulsion of four members for discussions in a Facebook group is absurd on its face. This is particularly so in the era of the Arab Spring. Facebook has become a tool of resistance, used to help the social movements bring down authoritarian regimes in Tunisia, Egypt and elsewhere. For Facebook conversations, in this same era, to be seen as a threat by leading left-wingers, is risible. In addition, the very thought of trying to monitor Facebook, as well as being impossible, implies a culture of surveillance which is antithetical to effective left politics.

2. The Facebook expulsions were justified with reference to the Bolshevik tradition and democratic centralism. This is based on a complete misunderstanding of both. One example will suffice. As the Bolshevik Party was preparing an insurrection towards the end of 1917, two leading party members, Lev Kamenev and Grigory Zinoviev, openly expressed their opposition to the insurrection in a non-party paper. Vladimir Lenin was furious, called them strike-breakers, and argued for their expulsion from the party (Lenin, 1917). He failed. The editors of the paper, in which his call for the expulsions was printed, responded by saying that: “the sharp tone of comrade Lenin’s article does not change the fact that, fundamentally, we remain of one mind” (Bone, 1974, p. 120). Zinoviev and Kamenev went on to play prominent roles in the Russian movement, as leading members of the Bolshevik and its successor, the Communist Party. This is worth underlining. The strike-breakers Zinoviev and Kamenev were not expelled in the context of the Russian revolutionary upsurge of 1917. The Russian Revolutionary tradition cannot be used as a pretext, therefore, to expel four individuals for comments on Facebook in the rather less revolutionary conditions of Britain, 2012.

3. This austere (and incorrect) interpretation of the Bolshevik tradition is compounded by the rigid prohibition on cross-branch discussion about party matters after the conference. This rigidity, combined with a sectarian habit of counterposing Marxism to feminism, can create an unhealthy internal dynamic leading to more and more punitive actions by the leadership.

These reflections are written by someone who is not a member of the SWP, and who does not live in Britain. However, the current crisis of the SWP has implications beyond the ranks of the SWP and outside the borders of Britain. As an important part of the English-speaking left, the SWP over the years has influenced many individuals and groups. Without correction, the actions by the current leadership, along with the errors regarding women’s oppression and left organizing, risk damaging the project of building a new left for the 21st century.

© 2013 Paul Kellogg


Bakan, A. (2012) ‘Marxism, Feminism, and Epistemological Dissonance’, Socialist Studies / Études socialistes, 8(2), 60–84.

Birchall, I. (2011) Tony Cliff: A Marxist for His Time. London: Bookmarks.

Bone, A. (trans.) (1974) The Bolsheviks and the October Revolution: minutes of the Central Committee of the Russian Social-Democratic Labour Party (bolsheviks) August 1917-February 1918. London: Pluto Press.

Cliff, T. (1984) Class struggle and women’s liberation, 1640 to today. London: Bookmarks.

Ferguson, S. (1999) ‘Building on the Strengths of the Socialist Feminist Tradition’, Critical Sociology, 25(1), 1–15.

Ferguson, S. (2008) ‘Canadian Contributions to Social Reproduction Feminism, Race and Embodied Labor’, Race, Gender & Class, 15(1/2), 42–57.

Leeds University SWSS (2013, January 12) Leeds University SWSS Statement [online]. Swiss Leeds Uni.  [Accessed12 January 2013 ]

Lenin, V. (1917, October 18) ‘Letter To Bolshevik Party Members’ [online], Pravda.

Miéville, C. (2006) Between Equal Rights: A Marxist Theory of International Law. Chicago: Haymarket Books.

Miéville, C. (2010) Kraken. New York: Random House Digital, Inc.

Miéville, C. (2012) Railsea. New York: Random House Digital, Inc.

Penny, L. (2013, January 11) ‘What does the SWP’s way of dealing with sex assault allegations tell us about the left?’ [online], New Statesman.

Seymour, R. (2013a, January 11) ‘Crisis in the SWP’ [online], Lenin’s Tomb.

Seymour, R. (2013b, January 12) ‘A reply to the Central Committee’ [online], Lenin’s Tomb.

Smith, S. (2012) Marxism and Women’s Liberation [online].

SWP’s Serbian Section Splits From IST’ [online], (2013, January 11) [online], Grumpy Old Trot.

Taylor, J. (2013, January 13) ‘Ranks of the Socialist Workers Party are split over handling of rape allegation’ [online], The Independent.

Walker, T. (2013, January 10) ‘Why I am resigning’ [online], Facts For Working People.

Historical Materialism in Canada

In the shadow of the economic crisis in Greece, inspired by Occupy, the Arab Spring, and Quebec’s “Maple Spring”, the 2012 edition of the Historical Materialism Conference in Toronto, was a resounding success. More than 400 people attended the 80-plus panels during an intensive three-day event stretching from Friday, May 11 through Sunday, May 13.

Historical Materialism saw an important series of discussions on indigenous politics, involving eight sessions, a plenary and a Long Table discussion. There was a well-attended session on the relationship between Marxism and Feminism and several sessions on key issues in political economy. The complete program can be seen here.

Historical Materialism originated as a journal 1997. Subscription information is available here. Annual conferences associated with the journal have been happening each November in London, U.K. since 2004. This year’s (the ninth annual) will be held between November 8 and 11, 2012.

Toward the United Front

One of the highlights of the 2012 Toronto HM conference, and of last year’s HM conference in London, was the launch of John Riddell’s 1310 page Toward the United Front: Proceedings of the Fourth Congress of the Communist International, 1922. At that congress, 350 delegates from 61 countries (Riddell 2012, 55) grappled with the political challenges of building a united anti-capitalist movement in the post-war era. Three panels at Historical Materialism Toronto addressed issues relevant to Riddell’s book, with 150 people in total participating in those discussions.

Riddell’s book – which was also the subject of multiple sessions at the HM conference in London in 2011 – is the seventh in an ongoing series making available the proceedings and documents relevant to the construction of an international socialist movement in the difficult years before, during and after World War One. An outline of the six earlier works is available here. Central to this project were the early congresses of the Communist International, the first being in 1919. Bringing together activists from around the world, these congresses grappled with the key political issues of the day, in very difficult circumstances.

The first congress took place while Russia suffered under a terrible blockade which fuelled civil war and caused untold suffering. This blockade – imposed on the country by Britain, France and the Allied powers from the spring of 1918 until it petered out in 1920 – began in two phases. After the October Revolution, “the allies stopped the flow of supplies to Russia”. But the full regular blockade “was established after the Brest-Litovsk treaty” (Carr 1978, 3:126). In other words, Russia was being strangled by the victorious democracies, as punishment for Russia bringing to an end the carnage of World War One on Germany’s eastern front. Blockade went along with military invasion to fuel the destructive civil war aimed at overthrowing the new Russian workers’ state. The military invasion proved futile. In February and March of 1919, there were mutinies among British, French and U.S. troops (Carr 1978, 3:127–127). By the fourth congress – the subject of Riddell’s book – the blockade had been lifted and the civil war was over. The Russian workers’ state emerged victorious – but suffered horrendous casualties.

Riddell’s translations – and his superb 59-page introduction – bring to life this 90 year-old gathering of activists. The hard cover version will be difficult to buy for many individuals, as its list price is €199 ($283). But it is an excellent volume to recommend to a library, particularly if you are associated with a university. And, a $55 paperback version will be available later this year, published by Haymarket Books in Chicago.

© 2012 Paul Kellogg


Carr, Edward Hallett. 1978. A History of Soviet Russia: The Bolshevik Revolution, 1917-1923, Volume Two. Vol. 3. 14 vols. Macmillan.

Riddell, John. 2012. Toward the United Front: Proceedings of the Fourth Congress of the Communist International, 1922. Boston: Brill Academic Publishers.

Organizing against the austerity agenda

A little word with a big footprint – “austerity” has now become normalized as part of the political discourse. Governments everywhere are positioning themselves to transfer billions of dollars from pensions, social services and public sector wages, to pay off debt built up in part during the Great Recession of 2008-2009. A resource in the fight against austerity is the just published special issue of Socialist Studies, containing contemporary analyses and historical reflections on both the economics of the austerity agenda, and strategies by which it can be resisted.
Sketching the economics of the austerity agenda is done in several places, including a wide-ranging interview with activist and scholar David McNally. He argues that properly understanding the effects of the crisis of 2008-2009 requires seing that it was preceded, not by a generation of capitalist crisis, but a generation of capitalist restabilization, “that since the early 1980s, there had been a twenty year long expansionary wave, which I’m calling the neoliberal expansion, which really did restore corporate profitability, which massively restructured labour processes, which squeezed workers, very dramatically increased their level of exploitation, and also kickstarted a huge geographic expansion of capitalism, particularly in China and East Asia.”

Resisting the austerity agenda is covered in various articles, including an examination of Canadian public sector unions by David Camfield, and an historical look at the origins of the “Days of Action” against Mike Harris, written by this author. The research for the latter reminded me of the important role played by social movement actors outside the organized labour movement in laying the groundwork for resistance in 1995 and 1996. The study of working class resistance cannot be confined to the union movement and the organized working class.

In addition, the journal continues its tradition of using its reviews section to introduce readers to new and important literature. A quick review of the books featured this issue, indicates an important revival of political economic writing in Canada. In particular, Susanne Soederberg’s Corporate Power and Ownership in Contemporary Capitalism: The Politics of Resistance and Domination (reviewed by Stephen McBride) and Todd Gordon’s Imperialist Canada (reviewed by this author), are important historical materialist additions to our understanding of contemporary capitalism.

There are many other articles and reviews in the collection – well worth the read.

©  2011 Paul Kellogg

Eastern Europe: Western Europe’s poor Second Cousin

The Berlin Wall – the physical barrier dividing the “communist” east from the “free” west – collapsed under the pressure of a magnificent mass movement in 1989. It was difficult, in 1989, not to be sympathetic with the beautiful sight of ordinary East German workers, physically dismantling an ugly barrier which had disfigured the city of Berlin since 1961. But among those in the West who were sympathetic to the revolt from below, most were influenced by what was without question accepted as a truism – that the collapse of the Berlin Wall symbolized the superiority of the market compared to “state-socialism”. East and West started out in much the same shape after the war, the argument goes. But in the west the market, with all its flaws, led to France, West Germany, Sweden, etc. developing into some of the biggest economies in the world, while East Germany, Hungary and the rest of the East stagnated. State control just does not work and the market, with all its problems, has proven its superiority. The problem with this argument is that East and West Europe did not begin from the same point at the end of World War Two.

Western Europe is home to economies which were the first in the world to undergo industrial revolutions. First in Netherlands and England in the sixteenth and seventeenth centuries, followed by France in the late eighteenth century and finally Germany in the late nineteenth century — it was here that capitalism firmly took root, smashing up the old, peasant-based societies, and laying the groundwork for extremely rapid industrialization.[1]

The basis for this industrial strength was driving the peasants off the land, and turning them into wage-labourers in the sprawling new cities of Europe — Manchester, Paris, Turin, Berlin. The wealth produced by an industrial working class – working in large collective workplaces with access over time to more and more machinery and automation – is far greater than that produced by a peasantry working in labour-intensive conditions on small plots of ground in the countryside. The Dutch, the French and the English, on the basis of the massive growth of their industrial economies in the nineteenth centuries, embarked on a global competition for world supremacy, ultimately bringing all or part of every continent in the world under their imperial control.

They were joined by Germany and the New World upstart the United States in the nineteenth century. The rivalries of these capitalist giants twice exploded into world war in the twentieth century.

The situation in what, before 1989, was called “Eastern Europe,” was very different. Much of Eastern Europe had, until very late in the day, aristocratic ruling classes that were much more successful at resisting the advance of capitalism than were their counterparts in the west. The wealth of the aristocracy was based on peasants tied to the great landed estates. Thus the aristocratic ruling class had an interest in preserving the old, peasant-based economies, and resisting the advance of industrial capitalism.

For reasons that are beyond the scope of this article, this ruling class was much more successful in Poland, Russia, Bulgaria, Rumania, etc., in resisting the rise of an industrial capitalist class, than in the West.

In the East, the bulk of the population until well into the twentieth century, continued to live very traditional lifestyles in labour-intensive conditions on the land.[2] The development of the industrial working class occurred, but as a small minority inside society. It wasn’t until the 1860s that serfdom was abolished in Russia. When the Russian Revolution happened in 1917, there were 15 times as many peasants as workers in the country. It was only as a result of defeat in World War II that the power of the old aristocratic ruling class in the Austro-Hungarian Empire was broken up.

Similarly the Ottoman Empire – from which came Turkey as well as several of the southern republics of the Soviet Union – survived the beginning of the twentieth century intact, its semi-feudal ruling class a real barrier to capitalist development. Only with defeat in the First World War was this ruling class smashed up and the possibility of industrial development opened up.

In short, the bulk of the “Eastern Bloc” was carved out of those sections of Europe and Asia that had been very late in embarking on a path of industrialization. The bulk of the “Western Bloc” was comprised of those countries that had been the first to industrialize, that had made incredible strides in the nineteenth and twentieth centuries in developing their industrial base, and had been able to, on that basis, spread their economic interests throughout much of the globe.

There are exceptions to this. Spain and Portugal in the Western bloc were late-industrializing countries, while East Germany in the Eastern bloc had been an historical heart of much of German industry. But in general, the pattern of most-advanced economies ending in the Western bloc, least advanced ending in the Eastern bloc, is accurate.

It means that the two sections of Europe that ended up confronting each other after World War II – a Western section under the hegemony of Washington, and an Eastern Section under the hegemony of Moscow – were coming from very different places. In the West, for the most part, were economies with a history and tradition of industrial capitalism going back generations. In the East, for the most part, were economies which until quite recently, had been under the thumb of conservative and reactionary land-based aristocracies, and which were, as a result, considerably poorer and considerably less industrialized than their counterparts in the West. It was not a contest between equals.

Previous article – “Twenty years since the fall of the Berlin Wall

Read next: The Legacy of World War II

© 2009 Paul Kellogg


[1] See E.J. Hobsbawm, The Age of Revolution: 1789-1848 (Toronto: New American Library, 1962); Immanuel Wallerstein, World-Systems analysis: An Introduction (Durham, North Carolina: Duke University Press, 2004).
[2] In one of his early, and largely overlooked books, Ygael Gluckstein (Tony Cliff) makes this exact point. “Of the total population those engaged in agriculture, fishing and forestry made up in Bulgaria (1934) 80 per cent; Yugoslavia (1931) 79 per cent; Rumania (1930) 78 per cent; Poland (1931) 65 per cent; Hungary (1930) 53 per cent; Czechoslovakia (1930) 38 per cent.” Ygael Gluckstein, Stalin’s Satellites in Europe (Boston: The Beacon Press, 1952), p. 13.

Twenty years since the fall of the Berlin Wall

August 19, 1989 hundreds of East Germans “attending a demonstration called the Pan-European Picnic, escaped into Austria from Hungary by storming a border gate that had been opened as a symbolic expression of unity.”[1] This was one part of an enormous mass movement which engulfed all of Russian-occupied Eastern Europe in the revolutionary year of 1989. As a result of this pressure, Hungary – then part of the Russian dominated Eastern Bloc – was forced to open its border with Austria, and thousands of East German workers – who could acquire visas to visit Hungary or get to Hungary through Czechoslovakia – took advantage of this hole in the “Iron Curtain” to pour across, into Austria, and from there into West Germany.[2] The pressure of this movement of millions, the pressure of a mass movement for democracy and freedom, ended with the November 1989 physical destruction of the Berlin Wall separating East and West Berlin. When that wall came down, a new era in world politics began.[3]

Before these momentous events, one theme dominated world politics – the competition between the United States and what was then called the U.S.S.R. – the Union of Soviet Socialist Republics (which dissolved in 1991). This rivalry was labeled “Cold” only because it did not erupt into a “Hot War” as did the earlier rivalry between Germany and Great Britain, a rivalry which was at the core of the charnel houses of World War I and World War II.

But Cold or Hot – it was terrifying. Three generations grew up in the shadow of the bomb – the nuclear weapons which were deployed in their thousands by both sides in the Cold War – living with the ever-present possibility of nuclear confrontation between the West (led by Washington) and the East (led by Moscow).

The 1980s in Eastern Europe opened with the great working class uprising in Poland in the early 1980s, creating the ten million strong union Solidarność, which by 1989 had been able to push aside the authoritarian Stalinist Communist Party and take governmental office.[4] This was the spark for the mass movements which were to sweep aside Stalinist rule throughout Eastern Europe.

East Germany, like Poland and the rest of Eastern Europe, had been run as a one-party state since being incorporated into the Russian sphere of influence after World War II. The Berlin Wall itself had been erected in 1961 to prevent East German workers escaping to the West. Its construction was an open condemnation of the failing of the so-called “Peoples’ Republics” of Eastern Europe. Its fall was a direct result of the democratization movements that were happening throughout Eastern Europe in the 1980s – moving from Poland to Hungary and Czechoslovakia – which allowed a way out for East Germans who wanted to escape authoritarian rule.

The collapse of the Berlin Wall symbolized the end of the Moscow-centred bloc and the end of the Cold War. The disappearance of the Russian bloc saw authoritarian regimes dissolve, first in Eastern Europe, then in Russia itself.

Now a story like this, in any other circumstance, would be inspiring for everyone on the left. Socialism began as a campaign for democracy and the right to vote.[5] Socialists are always campaigning for an increase in rights and political freedoms. Socialists have always historically identified with mass workers’ movements such as the one represented by Solidarność, and with movements for democratic rights such as those that swept Eastern Europe in the 1980s.

But this story was different. Russia called itself communist. Its East European satellite states called themselves communist. Liberal politicians and theorists had argued that the Cold War was a contest between capitalism in the west and communism in the east, and most on the left agreed. So in the wake of the 1989 collapse of the Berlin Wall and the collapse of these “communist” states – the confusion in much of the left was extreme. Accepting that these regimes were, in some way, socialist, post-capitalist or “workers’ states” drove many on the left into confusion at what they saw as the victory of the market over the state. Instead of joining in the celebrations, and dancing on the fallen wall, many on the left looked on in horror. By contrast, there was a triumphalism among liberal, pro-capitalist theorists. Francis Fukuyama talked about the “end of history”.[6] The argument was pounded home that 1989 proved the superiority of the market and capitalism over the state and socialism.

There was just one problem. The regimes in Russia and Eastern Europe might have been dominated by the state – but they were in no way socialist. Socialism is not about state power, but about the power of the working class and the oppressed. It is not about the suppression of democracy, but about the extension of democracy from the state to the economy. We need to not just elect members of parliament once every few years, but to elect our bosses, our administrators, our judges.[7] The key institution of socialism is not the state bureaucracy, the Politburo, the Party or the Central Committee. The key institution is the workers’ council – an institution of mass working class democracy and accountability. The outlines of this kind of direct democracy were sketched first by the workers of Paris in 1871, and then again by the workers of Russia in 1905 and 1917. A brilliant but short-lived sketch of a workers’ council state occurred in Budapest, Hungary, during the magnificent 1956 uprising against authoritarian rule and Russian occupation.[8]

Russia had seen viable workers’ councils for a few months after the revolution of 1917. But they had quickly disappeared in the cauldron of civil war, imperialist blockade and resulting starvation. The regime which emerged under the leadership of Joseph Stalin in no way resembled the hopes and dreams of those who toppled the Czar in 1917. It was not socialist but state capitalist.

At the end of World War II, when Russian troops occupied much of Eastern Europe, Stalin installed regimes modeled on his own. These regimes had the label communist. But like Russia they were best understood as state capitalist – economies run by the state, enmeshed in competition with the rest of world capitalism through the mechanism of the arms race.[9]

Those on the left who understood this – those of us who had said “Neither Washington Nor Moscow” through the long Cold War – had supported the great Polish uprising led by Solidarność and did not mourn in 1989, but joined in the celebrations when the wall fell.

Read next – “Eastern Europe: Western Europe’s poor Second Cousin

© 2009 Paul Kellogg


[1] Fernanda Santos, “Recalling the Day that Ripped An Opening in the Iron Curtain,” The New York Times, May 4, 2009, p. A.18
[2] Richard A. Leiby, The Unification of Germany (Westport, Connecticut: Greenwood Press, 1999), p. 28
[3] For a useful collection of background material, see The Center for History and New Media, “Making the History of 1989” (Fairfax, Virginia: George Mason University).
[4] For a gripping account of the origins of Solidarnosç, see Colin Barker and Kara Weber, Solidarność: From Gdansk to Military Repression, (London: Bookmarks, 1982).
[5] In the 19th century in Britain, for instance, socialists trace their movements origin to the struggle for the franchise led by the Chartists. See John Charlton, The Chartists: the first national workers’ movement (London: Pluto Press, 1997). For an overview of the centrality of political democracy to the left and the workers’ movement (again limited to a focus on Britain), see Paul Foot’s last book, Paul Foot, The Vote: How it Was Won and How it was Undermined (London: Penguin, 2005). Lars Lih has documented that the struggle for political democracy was far more central to the political orientation of the Russian Bolsheviks than is commonly understood. See Lars T. Lih, Lenin Rediscovered: What Is to Be Done? in Context (Boston: Brill, 2006), especially Chapter 2, “A Russian Erfurtian,” (pp. 111-158).
[6] Francis Fukuyama, “The End of History?National Interest, Summer, 1989
[7] This idea goes back to the great democratic experiment of the Paris Commune in 1871. Writing about this, Karl Marx described the “from below” institutions of mass democracy created by the Paris workers as “essentially a working-class government, the produce of the struggle of the producing against the appropriating class, the political form at last discovered under which to work out the economical emancipation of Labour.” (Karl Marx, The Civil War in France: Address of the General Council of the International Working Men’s Association in Karl Marx and Frederick Engels, Collected Works Volume 51 (New York: International Publishers, 1986), p 334. The necessary basis for working class emancipation, then, is the direct democracy of the producing class. Through this political act – the completion of the democratic revolution, if you will – the producing class will be able to begin working out how to end economic exploitation.
[8] See Peter Fryer, Hungarian Tragedy (London: Index Books, 1997) and Chris Harman, Bureaucracy and Revolution in Eastern Europe (London: Pluto Press, 1974).
[9] Two Russian Marxists, Leon Trotsky and Nikolai Bukharin, provided the theoretical foundations for the theory of state capitalism. Trotsky himself used the term “degenerated workers’ state” to analyze Russia in the 1930s. But two of his most important books from the last years of his life are central in the understanding of the counter-revolution which shaped the new Stalinist regime emerging from the wreckage of Civil War. See Leon Trotsky, The Revolution Betrayed: What Is the Soviet Union and Where is it Going? (Garden City, New York: Doubleday, Doran & Company Inc., 1937), and the unfinished work (unfinished because of Trotsky’s assassination by a Stalinist agent) Trotsky, Stalin: an appraisal of the man and his influence (London: Hollis and Carter, 1947). Bukharin’s key work was Imperialism and World Economy (which really should be translated as World Economy and Imperialism), newly republished in Phil Gasper, ed. Imperialism and War (Chicago: Haymarket Books, 2009). Leon Trotsky’s one-time administrative assistant, Raya Dunayevskaya, was one of the first Marxists to develop a worked out view conceptualizing the U.S.S.R. as a form of state capitalism. See Raya Dunayevskaya, “The Union of Soviet Socialist Republics is a Capitalist Society,” Internal Discussion Bulletin of the Workers’ Party, March 1941, and Dunayevskaya, “The Nature of the Russian Economy,” The New International, December 1946/January 1947. She was joined in this viewpoint by one of the 20th century’s most respected Marxist theorists, C.L.R. James. See C.L.R. James and Raya Dunayevskaya, “State Capitalism and World Revolution”, 1950. In the last decades of the 20th century, the theorist most closely identified with the theory of state capitalism was Ygael Gluckstein (Tony Cliff). See Tony Cliff, Russia: A Marxist Analysis (London: International Socialism, 1964).

The Septembers of Neoliberalism

It was September 11, 1973, that the neo-liberal experiment began. The brutal U.S.-backed coup against Salvador Allende’s government opened the door for the “Chicago Boys” – a group of Chilean economists who had studied under Milton Friedman at the University of Chicago[1] – to “reconstruct the Chilean economy … along free-market lines, privatizing public assets, opening up natural resources to private exploitation and facilitating foreign direct investment and free trade.”[2] September 7, 2008 – thirty-five years later – that experiment came to an end, not with a whimper, but a bang. The neo-liberal regime of George Bush – more closely identified than any other world figure with the politics of keeping government out of the market – is now presiding over a state intervention into the so-called “free” market that is without parallel. When the dust settles: a) hundreds of billions of dollars will have been spent to try and fix a broken financial system; b) a generation of free-market arrogance and ideology will lie in ruins, its ideological clarion call “neo-liberalism” completely discredited; and c) the U.S. empire will be exposed as a declining (if vicious) beast. The events of September 2008 mark a watershed in the history of capitalism.

Fannie and Freddie

The first act in this story is in many ways still the most significant if not the most dramatic. September 7, 2008, the United States Treasury announced it would seize control of two institutions called Fannie Mae and Freddie Mac. At the time, this represented “the world’s biggest financial bailout” (a record it would only claim for a few dozen hours). The U.S. government pledged to guarantee literally trillions in the two companies’ investments, something that estimates said would end up costing U.S. taxpayers in the order of $25 billion.

What are these peculiarly named institutions? Fannie Mae stands for “Federal National Mortgage Association” and Freddie Mac stands for “Federal Loan Mortgage Corporation.” Both are GSEs – “government-sponsored enterprises,” creations of the U.S. government, but which operate as shareholder run companies. Fannie Mae’s roots go back to the depression-era. It was created in 1938 to “provide funding to the housing market … Freddie Mac was created in 1970 to provide competition to Fannie Mae.”[3]

Their role in the housing market is indirect. Homeowners in the United States borrow money from lenders (banks and other financial institutions) just as in other countries. What Fannie and Freddy do is to buy these mortgages from the lenders. This gives the “mortgage initiators” instant cash, and a little bit of profit, allowing them to go back and quickly offer new mortgages. Fannie and Freddy then turn around and repackage the various mortgages they have purchased as “mortgage-backed securities.” They sell these securities on the secondary mortgage market – in effect borrowing money, but using these “securities” as collateral – counting on the income from the payment of mortgage principle and interest to give them cash to repay these loans.[4]

This “provides liquidity” to the housing market. It also has the effect of creating a huge incentive to get more and more people to buy houses, as at every level of this structure, incomes and profits are dependent on a constantly expanding base of home ownership. In the scheme above, there are massive fortunes to be made – by the banks and other mortgage issuers, by Fannie and Freddy and their hangers-on, and by the investors who buy up the Fannie and Freddy debt. Former Fannie CEO Daniel Mudd was in line to receive up to $8.4 million in compensation. Freddie Mac’s former CEO was in line for $15.5 million.[5] And John McCain’s campaign for the U.S. presidency, suffered a setback when it was revealed that Freddy Mac had been paying $15,000 a month from the end of 2005 until September 2008 to a firm owned by McCain’s campaign manager.[6] All had an incentive in “priming the pump” – creating incentives for working people to pony-up and enter the world of home ownership. The whole scheme works fine as long as homeowners can pay their mortgages. But if they can’t …

So base greed is an element that fed this bonfire. But that wasn’t the only, or even the biggest issue – the problems were structural. In the stock market crash at the turn of the century, huge fortunes were lost when the dot-com bubble burst. With investors burned from their experience in the stock market, U.S. interest rates were reduced to unprecedentedly low levels, as the U.S. federal reserve essentially “printed money” to stave off a deeper crisis. One key measure of interest rates, the U.S. federal funds rate, dropped below two percent in November 2001, and stayed below two percent for three years, bottoming out at just below one percent in December 2003.[7] Mortgage rates don’t track Federal Funds Rates exactly, but mortgage rates did come down, so that at their lowest point in 2003 and 2004, it was possible to get Adjustable Rate Mortgages (mortgages which increase or decrease with the rise and fall of interest rates) for between 3 and 4 percent.[8] In fact, people often were able to get mortgages below that rate – with incentives of very low interest rates in the first few years of the mortgage to encourage the plunge into home ownership. With millions moving into home ownership, the mortgage-backed securities market prospered. The effect was to create an environment where billions of dollars could flee an insecure stock market, and find a “safe haven” in the housing market, by investors moving from speculating in stocks to speculating in “mortgage-backed securities.”

This structure was riven with problems. The rush into home buying which this created, pushed house prices very high very fast. This has been a visible problem for some time. In 2006, one analyst wrote: “Cheap money turned the real estate boom into a frenzy … prices in most hot markets … soared by 55 per cent to 100 per cent (on top of inflation). Trying to keep pace, buyers increasingly resorted to riskier loans to lower monthly payments. Two types became the rage: adjustable rate mortgages and exotics.” We have already looked at the ARMs. The Exotics bear a little examination, the most extreme of which was “the negative-amortization loan, which allows borrowers to pay less than the interest due. The unpaid interest is tacked onto the principal, so the size of the loan grows every month. In 2004 and 2005, no less than 75 per cent of all mortgages were either ARMs or exotic loans, compared to 20 per cent in the late 1990s.”[9]

This outline is important. Some are blaming poor home buying decisions by ordinary working people for the way in which this crisis has unfolded. But it was not “reckless spending” by the poor. It was a structure, driven by greed, which created enormous pressures and incentives to abandon renting and jump into the home-buying game – simply because massive fortunes were being made. Suddenly, working people were being pressured to take on debt far in excess of their capacity to pay. The best way of measuring this is looking at the ratio of house prices to household income. The graph here shows a steady upward climb in that ratio for the United States as a whole, from the late 1990s to the mid-point of this decade – in some cities, an extremely steep rise.[10]

But interest rates don’t stay low forever. Here the story has another layer of complications. There is a close relationship in most countries between the health of the currency and the trend in interest rates. Roughly, if the country is increasing its international indebtedness, there will be downward pressure on its currency relative to other currencies. This can be countered by increasing interest rates to attract investors in spite of the increasing debt burden. At times these rates have to go up considerably to prevent a precipitous fall in the currency.

There are some who say this pressure has yet to make itself felt in the United States. The entire post-war period has been defined by the domination of the international economy by the U.S. dollar. Its “unique” place in the world economy is often seen as making it relatively immune to the downward pressure that other currencies experience when their economies become increasingly indebted. A commonly used measure of this is a comparison of the U.S. dollar to major currencies. The resulting graph does not show overwhelming U.S. dollar weakness, but rather a generations-long fluctuation with no clear trend either up or down.[11]

But there is a problem with this way of representing the health of the U.S. Dollar. The figures in this comparison go back only until 1973. This leaves out of the picture the biggest story in the history of the U.S. dollar, the effect of it “freeing itself” from the gold standard. This was the decision Richard Nixon took in 1971, allowing the U.S. to “print dollars” unencumbered by maintaining an equivalent stock in gold. The most readily accessible international comparative figures, because they begin in 1973, do not factor this epochal event into their picture. But it is possible to improvise a comparison.

The chart “Decline of the U.S. Dollar” shows the U.S. Dollar measured against the Yen (currency of Japan) and something that is being called the “EuroMark” – a statistical composite of the Mark, formerly the currency of Germany, Europe’s biggest economy, and the Euro which has now replaced the Mark and most other major European currencies. The result is very clear. The U.S. dollar is approximately 1/3 of what it was in 1971, compared to the Yen and the “EuroMark”.[12]

The U.S. Dollar has been steadily declining against its major competitors for years. The devaluation that happened after the abandonment of the gold standard was immediate and quick, becoming precipitous in the late 1970s. This was reversed in the early 1980s by a policy of very high interest rates, then fell steadily until the 1990s, recovering somewhat in the Clinton years, but returning to decline under Bush. As the dollar declines, it inevitably leads to a day when interest rates have to go up, or the dollar’s fall could accelerate dangerously. So in Bush’s second term, interest rates have inched upwards, and this in turn became part of an environment pushing higher and higher the interest rates on millions of peoples’ mortgages.

Finally, none of this works if homeowners start to lose their jobs. When this cycle began, unemployment was at historically low levels – just 3.9 per cent, in the last four months of 2000. That increased to 6.3 percent by September 2003, dropped below five percent through the last half of 2005 and the first two months of 2008, but has since climbed steadily to 6.1 percent by August of 2008.[13]

The effects of these problems became visible in the summer of 2007. With interest rates rising, some homebuyers could not make the payments, and the number of defaults began to rise. Rising interest rates and rising unemployment, started to decrease demand for houses, so prices began to fall. And with house prices falling, many saw the value of their house fall far below the principal remaining on their mortgage – creating an incentive to simply walk away from the debt – default on the mortgage, and go back to renting. The result has been the highest rates of foreclosures in the modern era. A report from the Mortgage Bankers’ Association indicated that: ”about 2.75 percent of all home loans, or about 1.75 million mortgages, were in foreclosure at the end of June [2008], up from 2.47 percent in March. That was the highest foreclosure rate since 1979, when the Mortgage Bankers first collected the data.”[14]

As these millions of foreclosures rippled through the system, the whole flimsy structure started to shake. Between them, Fannie and Freddy had issued $3.7 trillion worth of mortgage-backed securities.[15] But suddenly, as mortgage payments started to fall because of defaults, as the assets backing these mortgages started to lose value with the falling prices of houses in the United States, these securities looked a whole lot less secure.

Bankers’ Strike

Neo-liberalism is a modern restatement of an old “free-market” orthodoxy. Markets know best. Let the “hidden hand” of the market do its magic, and a million individual decisions based on individual self-interest, will end up with a virtuous direction for the economy and society as a whole. Sometimes there are barriers to the operation of this hidden hand – too much government intervention, too much regulation being two of the most often cited. Get rid of them. The state’s role is to do away with regulation, to unfetter the markets from the hands of government, to let the markets do their work.

So – from the standpoint of neo-liberal orthodoxy, it is a matter of some indifference that Fannie and Freddy were under stress. Joseph Schumpeter argued last century that capitalism worked through processes of “creative destruction” where periodically whole sections of capital are destroyed in economic slump. This process, while painful, was central to the working of capitalism, clearing the ground for a new round of investment, the way in which a forest fire burns away the underbrush, allowing new saplings to reach for the sky. In Schumpeter’s words the “creative destruction” of competition, bankruptcy and consolidation “revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist has got to live with.”[16]

But the capitalists who made the decisions leading to the impasse of the U.S. financial system are not going to live with the consequence of their actions. Something pushed the neo-liberals into acting against neo-liberal orthodoxy and save those capitalists from the consequences of their actions. What the neo-liberals discovered was that the U.S. economy was not all-powerful, that had they let the process go too far, and the consequences of a full-blown cycle of “creative destruction” would have been disastrous. The issue was not simply one of mortgages – it was about the structural problems of the international, not just the U.S., capitalist system.

So far only one part of the story has been told, the story of mortgages, Fannie and Freddy, and their selling of “mortgage-backed securities”. The next question that has to be asked is, who buys these securities? The economists’ answer is that they are bought by “risk-averse investors such as banks, pension funds and central banks around the world,”[17] investors in other words who want a guaranteed return on their investments, and little or no risk of these investments turning into worthless paper. Fannie and Freddy’s total liabilities is mostly debt, most of it from the sale of mortgage-backed securities, and it totals in excess of $1.7 trillion dollars.[18] Significantly, increasing portions of that debt have been sold to non-U.S. banks and investors. The top five in reverse order, as of June 2007 were Taiwan ($55 billion), South Korea ($63 billion), Russia ($75 billion), Japan ($228 billion) and China ($376 billion).[19] The entire structure then was increasingly dependent on the willingness of banks and other institutions in these countries, to continue giving Fanny and Freddy billions of dollars.

This summer, it came to an end. Under pressure from their eroding mortgage business, Fannie stocks fell from $67.30 a share October 5 2007, to just $7 a share, September 4, 2008.[20] Freddy stocks followed the same downward slide, from $63.43 to $4.95.[21] Suddenly, non-U.S. investors, particularly in Asia, began to worry. The slide in share value of Fannie and Freddy raised the possibility that the two companies could go bankrupt. That would leave banks and investors in Asia and elsewhere holding pieces of paper worth billions of dollars less than their face value. “Chinese banks ‘were probably facing significant losses,’ says Logan Wright, an analyst with Stone & McCarthy Research.”[22]

Bankers from outside the United States began to apply leverage. In the first half of 2007, central bank holdings of Fannie and Freddie securities increased on average by $22 billion a month. But in 2008, those holdings fell by $27 billion from mid-July through early September.[23] And the Financial Times reported in August under the headline “Bank of China flees Fannie-Freddie,” that “Bank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae and Freddie Mac by a quarter since the end of June. The sale by China’s fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn, is a sign of nervousness among foreign buyers of Fannie and Freddie’s bonds and guaranteed securities.”[24] “The threat of a central bank buyers’ strike was real,” accord to Brad Setser, a former Treasury Dept. official and now a fellow at the Council on Foreign Relations.[25]

Neo-liberal orthodoxy dictated “let the market rule,” let the processes of creative destruction work themselves out. But bankers outside the U.S. who stood to lose billions from this market failure said; “Creative Destruction be damned. If you don’t act, we will start withdrawing our money. We are already doing it. We will not let you ‘cleanse’ your economy by leaving us holding worthless pieces of paper.” So facing an enormous catastrophe, Bush and the U.S. administration suddenly switched from the world’s biggest neo-liberals, to the world’s biggest state-capitalists, when they intervened to guarantee the debt held by Fannie and Freddy. Many of their neo-liberal ideologues were left wondering what had hit them. This whole thing might, said one commentator become a “nightmare scenario, the descent into quasi-socialism” which “balloons the national debt and wrecks foreign investors’ faith in the economy.”[26]

The state and capital

But of course this has nothing to do with “socialism” – unless it is a kind of Frankenstein’s Monster socialism, where the state robs from the poor to give to the rich – because that is exactly what is happening: tax dollars from U.S. workers to be used to pour into the balance sheet of two failed corporations. It is a myth of the neo-liberals that the state is separate from the market. There is of course the central role of state militarism. The British Navy ruled the waves so that British business could penetrate every corner of the globe in the 19th century. The U.S. military has time and again overthrown governments in Latin America to keep the hemisphere open for business. But there are also the directly economic ways in which the state is intimately tied to the development of capitalism. British imperialism jealously protected its industries behind the walls of empire. India did not build its rail network with British steel and rolling stock because of the market, but because of imperialism.[27] Japanese capitalism burst into the 20th century after the Meiji Restoration used the Japanese state to mobilize resources in order to industrialize.[28] Canadian capitalism had at its core the construction of a continental rail network, which bankrupted the private capitalists, and was only finished because of the state-capitalist “National Policy.”[29] In South Korea, the industrial revolution in the post-war era was inconceivable without the “chaebols”, very much creatures of the South Korean state.

The myth that capitalism is about the retreat of the state, and that socialism is about its reverse – state intervention – is a myth made easier by the long nightmare of Stalinism, where there were states which called themselves “socialist” and which said the same thing as the neo-liberals only in reverse: “We are socialist because the state owns everything: never mind the absence of civil rights and the absence of democracy.” But the Stalinist states are long gone, and a new generation is returning to the roots of the socialist movement, understanding that socialism is about popular control, workers’ control of the economy and the state, or it is about nothing. It can be important to have the state intervene to fix problems in the economy. But the key question becomes – who controls that state? In the United States, we can be pretty sure that the state is controlled by the corporate elite.

That capitalist state, having got the taste of government intervention to save capitalism from itself, has now become ravenous for more. Fannie and Freddy were only two of the institutions under stress because of economic problems in the United States. September 16, the U.S. Federal Reserve took over American Insurance Group for $85 billion. House Speaker Nancy Pelosi criticized the rescue, calling the $85 billion a “staggering sum.” Ms. Pelosi said the bailout was “just too enormous for the American people to guarantee.”[30] But that staggering sum has now been dwarfed by another even larger sum. United States’ Treasury Secretary Henry Paulson is asking Congress to come up with $700-billion to clean “toxic assets” out of the U.S. financial system. What he wants is to have enough money on hand so that any bank or financial institution which has a piece of paper that is looking pretty worthless, Paulson will have the money to say “no problem, we’ll take it off your hands.”

How do you come up with this “worst-case scenario” figure? Federal Reserve Chairman Ben Bernanke said in testimony that “ ‘various metrics’ could be used to arrive at that $700 billion number. It is 5% of $14 trillion in outstanding mortgage debt and roughly the same percentage of the $10 trillion to $12 trillion of commercial bank assets. ‘So it seems like an appropriate amount relative to the size of the problem.’”[31]

Seems like an appropriate amount. You would have thought he would have hired someone to get figures so that he could be a little more definitive given the “size of the problem.” What we are looking at is a trillion-dollar intervention by the U.S. government into the financial system of the world’s biggest economy – the biggest ever economic intervention by a state into any economy anywhere – that is going to change the shape of economics and politics for a generation. The crisis brings into focus three central points.

1) The decline of the U.S. and the Danger of Militarism

There has been a sharp divide in anti-capitalist circles over the position of the U.S. in the world system. Theorists like Antonio Negri and Michael Hardt argued that empire had become disembodied from the state.

In contrast to imperialism, Empire establishes no territorial centre of power and does not rely on fixed boundaries or barriers. It is a decentred and deterritorialized apparatus of rule that progressively incorporates the entire global realm within its open, expanding powers. Empire manages hybrid identities, flexible hierarchies, and plural exchanges through modulating networks of command. The distinct national colours of the imperialist map of the world have merged and blended in the imperial global rainbow.[32]

The actions of states in the context of the current crisis shows this analysis to be inadequate. The states of the various central banks which had holdings of U.S. securities, including the state in China – all have particular interests that they seek to assert. Similarly, the state in the U.S. is suddenly enormously and obviously important to Empire – doing what no corporation on its own can do, mobilizing the tax resources of working people to bail out the financial system. “Empire” is just as bound up with the state system – a system of competing and predatory states – as were all previous systems of imperialism.

Theorists like Leo Panitch and Sam Gindin have challenged Hardt and Negri on exactly this point, seeing very clearly the continuing role of the state in shaping the field of power that has been called “Empire.” However, in the place of a system of imperialist states, they tend to reduce “Empire” to just one state – the overwhelmingly dominant U.S. state. They have argued that U.S. penetration of European and Asian capital is so profound as to make irrelevant and archaic any notion of inter-imperial rivalry.[33] But this view too is being revealed as problematic. The long decline of the U.S. dollar, documented above, is an indication of the worsening competitive position of the United States against its rivals in Europe and Asia. And the way in which this bailout took shape – in part from the threat of a strike by central bankers outside the United States, refusing to further invest in U.S. securities, is another powerful indicator of a changing world order. The U.S. remains the world’s biggest economy and most powerful state. But its position relative to others has been in decline for decades, and this débacle shows that the decline is ongoing.

There is a very developed literature, under the heading of the “Permanent Arms Economy,” that makes a compelling case to explain this decline.[34] The long-term structural shift of resources into arms has effectively starved key sections of the U.S. economy of investment, allowing others in the world system to catch-up and in some cases economically overtake the United States. The massive military presence sustained by the U.S. since the Korean War, has been accomplished at the cost of its international competitiveness. Other countries have invested in their “civilian economies” to a much greater extent than the U.S., overtime weakening the relative position of the U.S. in the world system, something now being starkly revealed in the current economic crisis.

But we also know from the last empire to fall under the weight of its arms spending – the Soviet Union – that an addiction to war might have negative effects for an economy, but it is still an addiction. The Soviet Union stayed mired in pointless and bloody wars abroad virtually until it collapsed in the years 1989-1991. The U.S. addiction to arms spending is likely to have the same contours – bad for the economy, but unshakeable for the state. It means that the wars in Iraq and Afghanistan are likely to be with us for some time.

2) Ideological crisis of neo-liberalism

This September financial shock, has opened up a period of deep confusion and splits for the hegemonic ideology of neo-liberalism. The $700-billion bailout is being pushed by Republican George W. Bush, the world’s pre-eminent neo-liberal. Its principal opposition has come from – the staunchly neo-liberal Congressional Caucus of his own party.[35] It was these neo-liberal hardliners who were at the core of the defeat of the $700-billion bailout package in the first vote in Congress.[36] The neo-liberal monolith has cracked over its key precept – that markets should be “free” of the state.

Without any question, this chaotic, sudden shift from the neo-liberal orthodoxy of the small state and the free market to a new state-capitalist interventionism – this shift will like a thunderbolt make millions question the orthodoxies of neo-liberalism. Why are the bankers being given billions, while those who have lost their homes get nothing? In the parlance of the journalists, “why is Wall Street getting billions that come from the pockets of the ordinary folk of Main Street”? If we are going to have state intervention, why not go all the way – use the money for public transit, green jobs, public housing, schools and education, investments that help ordinary people not overpaid bankers?

But as Naomi Klein has pointed out, a crisis in the ideology of neo-liberalism is not the same thing as a retreat from the policies of neo-liberalism – the privatization and deregulation which have so plagued working peoples’ lives for more than a generation.

It would be a grave mistake to underestimate the right’s ability to use this crisis – created by deregulation and privatization – to demand more of the same. … the dumping of private debt into the public coffers is only stage one of the current shock. The second comes when the debt crisis currently being created by this bailout becomes the excuse to privatize social security, lower corporate taxes and cut spending on the poor. A President McCain would embrace these policies willingly. A President Obama would come under huge pressure from the think tanks and the corporate media to abandon his campaign promises and embrace austerity and “free-market stimulus.”[37]

It is worth remembering that one of the modern architects of neo-liberalism, Margaret Thatcher, was very clear on this point. Thatcher is associated with the phrase “there is no alternative” or “TINA” – usually seen as justifying the unbridled rule of competition. Susan George writes that Thatcher:

… was well known for justifying her programme with the single word TINA, short for There Is No Alternative. The central value of Thatcher’s doctrine and of neo-liberalism itself is the notion of competition – competition between nations, regions, firms and of course between individuals. Competition is central because it separates the sheep from the goats, the men from the boys, the fit from the unfit. It is supposed to allocate all resources, whether physical, natural, human or financial with the greatest possible efficiency.[38]

But in Thatcher’s classic and most often cited use of the term, this was not quite what she said and this was not quite her point. At a speech to the Conservative Women’s Conference, May 21, 1980, Thatcher’s theme was the way in which wages were increasing too quickly.

Wages in the public sector are still higher than the country can afford … earnings will have to rise much more slowly if we are to avoid still more unemployment and if we are to get inflation down. It is too often forgotten that during the last two years there has been considerable increase in average living standards. What we produce has been growing much more slowly. We have to get our production and our earnings into balance. There’s no easy popularity in what we are proposing but it is fundamentally sound. Yet I believe people accept there’s no real alternative.[39]

The point is, Thatcher was not in the first instance driven by an abstract commitment to the market, but by a class commitment to transferring wealth from workers to employers. In this, the role of the state is a tactic, not a principle. The Thatcherite state showed its capacity to intervene against workers’ wages with real brutality during the bitter miners’ strike of 1984-1985.[40] Neo-liberal orthodoxy may lie exposed as nonsensical, but the class which brought us neo-liberalism remains in power, motivated by the same project – capturing the wealth produced by “Main Street” and making sure it ends up in the pockets of “Wall Street.”

3) The need for social movements against capitalism in all its forms

Which leads to the most important point, the need to insist that Thatcher and the neo-liberals are wrong – there is an alternative. In the 1990s and early 21st century, there was a magnificent international movement against neo-liberal globalization. The great protests against NAFTA led by the Zapatistas, the protests against the WTO in Seattle, against the FTAA in Quebec City, against the G8 in Genoa – these protests mobilized hundreds of thousands.

But the political leadership of these movements rested in groups like ATTAC in France or the Workers’ Party of Brazil. For them the target was not capitalism itself, but capitalism in its neo-liberal form. Neo-liberalism is now in open crisis, but the alternative on offer is not re-assuring – a strong state that protects corporations from their own excesses, and does so by taxing and squeezing the wages of ordinary workers. The problem is not just neo-liberalism. The problem is capitalism, whether in its “neo-liberal” or “state-interventionist” form. The next round of anti-corporate mobilizations needs that understanding at its centre.

We are seeing today in North America the hollowness of the neo-liberal dystopia. Others saw it earlier. It was after all the indigenous people of Chiapas who rose up against the neo-liberal North American Free Trade Agreement (NAFTA) in January, 1994, the peasants of Cochabamba in 2000 who stopped the water privatizers in their tracks, the masses of Caracas who in 2002 prevented the coup d’état which would have restored neo-liberalism in Venezuela, part of the swelling rage of all the oppressed in Latin America who, the principal road-block to the 2005 imposition of the U.S. led neo-liberal Free Trade Area of the America (FTAA). Perhaps just as neo-liberalism’s birth was in Latin America, it will similarly be Latin America where we will see the beginnings of the new social movements challenging capitalism in all its forms.

© 2008 Paul Kellogg


[1] Gilberto Villarroel, “La herencia de los ‘Chicago boys’,”, December 10, 2006,
[2] David Harvey, Spaces of Global Capital: Towards a Theory of Uneven Geographical Development (New York: Verso, 2006), p. 12
[3] “US rescues giant mortgage lenders,” BBC News, September 7, 2008
[4] Alana Semuels, “Q&A about mortgage giants Fannie Mae, Freddie Mac,” Los Angeles Times, September 8, 2008,
[5] The Associated Press, “Answers to your Fannie Mae, Freddie Mac takeover questions,” New York Daily News, September 11, 2008,
[6] Jackie Calmes, David D. Kirkpatrick, “McCain Aide’s Firm Was Paid by Freddie Mac,” The New York Times, September 23, 2008
[7] Bank of Canada, “Monthly Series: V122150: Federal Funds Rate”,
[8] HSH Associates Financial Publishers, “HSH’s National Monthly Mortgage Statistics,”
[9] Shawn Tully, “Real Estate Survival Guide,” Fortune, Vol. 153 Issue 9, May 11, 2006, pp. 94-102
[10] Calculated from Joint Centre for Housing Studies, The State of the Nation’s Housing 2007, “Additional Table: Metropolitan Area House Price-Income Ratio, 1980-2006,” Figures are not yet readily available for 2007 and 2008. However, an update has been released to one analyst, which shows the same general trend, with the addition that from 2007 on, house prices have started to fall – the graphical representation of the bursting of the housing bubble. See CalculatedRisk, “Update: Ratio Median House Price to Median Income (2008 Report),” June 24, 2008,
[11] U.S. Federal Reserve Board, Federal Reserve Statistical Release, H.10 “Foreign Exchange Rates,” “Price-adjusted Major Currencies Dollar Index,”
[12] Derived from “FXHistory®: historical currency exchange rates,” accessed September 24, 2008.
[13] Bureau of Labor Statistics, U.S. Department of Labor, “Labor Force Statistics from the Current Population Survey,”
[14] Vikas Bajaj, “Foreclosures Rose as Delinquencies Eased in Quarter,” The New York Times, September 5, 2008
[15] According to Peter Coy, “Back on Track – Or Off The Rails?” Businessweek, September 22, 2008, p. 24
[16] Joseph Schumpeter, Capitalism, Socialism and Democracy (New York: Routledge, 1994), p. 83
[17] Coy, “Back on Track,” p. 24
[18] MarketWatch, The Wall Street Journal Digital Network, and
[19] U.S. Treasury Dept., as reported by Bruce Einhorn and Theo Francis, “Asia Breathes a Sigh of Relief,” Businessweek, September 22, 2008, p. 32.
[20] Yahoo Finance,
[21] Yahoo Finance,
[22] Einhorn and Francis, “Asia Breathes A Sigh of Relief,” p. 32
[23] Einhorn and Francis, “Asia Breathes A Sigh of Relief,” p. 32
[24] Saskia Scholtes and James Politi, “Bank of China flees Fannie-Freddie,” Financial Times, August 28, 2008
[25] Einhorn and Francis, “Asia Breathes A Sigh of Relief,” p. 32
[26] Coy, “Back on Track – Or Off the Rails,” p. 25
[27] Clarence Baldwin Davis, Kenneth E. Wilburn, Ronadl Edward Robinson, Railway Imperialism (Westport: Greenwood Press, 1991)
[28] Colin Barker, “Origins and Significance of the Meiji Restoration,” 1982,
[29] Stanley Ryerson, Unequal Union (New York: International Publishers, 1968)
[30] Edmund L. Andrews, “Fed’s $85 Billion Loan Rescues Insurer,” The New York Times, September 16, 2008
[31] Joshua Zumbrun and Liz Moyer, “Your Guide To The Bailout Debate,” September 24, 2008,
[32] Michael Hardt, Antonio Negri, Empire (Boston: Harvard University Press, 2000), pp. xii-xiii
[33] See essays in Leo Panitch and Colin Leys, eds., Socialist Register 2004: The New Imperial Challenge and Socialist Register 2005: The Empire Reloaded (London: Merlin Press). For an exchange that goes over this controversy in detail, see: Alex Callinicos, “Imperialism and Global Political Economy,” International Socialism 108 (Autumn 2005); Leo Panitch and Sam Gindin, “ ‘Imperialism and Global Political Economy’ – A Reply to Alex Callinicos,” International Socialism 109 (Winter 2006); and Alex Callinicos, “Making sense of imperialism: a reply to Leo Panitch and Sam Gindin,” International Socialism 110 (Spring 2007) – all available online at
[34] See Michael Kidron, Capitalism and Theory (London: Pluto Press, 1974) for a classic development of this thesis. Some of Kidron’s writings are available at The Marxists Internet Archive,
[35] Sheldon Alberts and Don MacDonald, “Bailout plan stalls as conservative Republicans voice their opposition,” The Vancouver Sun, September 26, 2008
[36] Carl Hulse and David M. Herszenhorn, “Lawmakers Defy Bush and Party Leaders, Rejecting Bailout,” The New York Times, September 29, 2008
[37] Naomi Klein, “Now is the Time to Resist Wall Street’s Shock Doctrine,” The Huffington Post, September 25, 2008
[38] Susan George, “A Short History of Neoliberalism: Twenty Years of Elite Economics and Emerging Opportunities for Structural Change,” Transnational Institute,, March 24, 1999,
[39] Margaret Thatcher, “Speech to Conservative Women’s Conference,” Margaret Thatcher Foundation, May 21, 1980,
[40] See, among other accounts, Alex Callinicos and Mike Simons, The Great Strike: The Miners’ Strike of 1984-5 And Its Lessons (London: Socialist Worker, 1985)