Obama’s chief strategic goal, at home and abroad, is to manage a severe crisis in one kind of capitalism (private) by achieving a transition to another kind (state managed or state). Because the crisis of private capitalism inside the US is so serious and requires so many resources and so much focused policy attention, the global position of the US receives relatively less attention and a lower priority. The Obama strategy thus entails a retreat from the Reagan-through-Bush positions on the US role in the world (expressed by attacking them as “counter-productive”). Its hallmarks are withdrawal from unilateralism in favor of multilateralism (e.g., new arrangements with Europe); reduction of most confrontation situations (e,g, Cuba, Iran, Iraq, and North Korea) to focus on just one (Afghanistan-Pakistan); and accommodation vis-à-vis critical regimes (especially in South America). A successful transition from a relatively private to a limited state capitalism in the US poses a major international contradiction for the Obama government: it can only be achieved at the expense of the rest of the world economy. The strategic problems for Obama are (1) that other regions of the world will resist bearing these expenses and the risks associated with them, and (2) that resulting delays in overcoming the crisis will create opportunities for alternative working-class based anti-capitalist solutions to the crisis.

 

I. Capitalism’s Recurring Transitions between Private and State Forms

Throughout its history and across its geography, capitalism has swung back and forth between private and state forms.  The former reduces while the latter enlarges the state's intervention in the economy.  The economic events that precipitate swings (in both directions) have been various mixes of recession and widening inequalities of wealth and income.  Political oscillations have paralleled the economic.  Parties or factions losing power are those most closely associated with the kind of capitalism being displaced, while the ascendant parties or factions champion the other kind.  Cultural oscillations complete the interconnected tableau.  For example, in the speeches and writings of the politicians, professors, and journalists, celebrations of private capitalism (named, for example, neo-liberalism, free enterprise or simply freedom) oscillate with celebrations of state capitalism (named, for example, welfare statism, managed capitalism or even “socialism”).

 

These economic, political, and cultural oscillations are simultaneously causes and effects of one another.  Together they can sometimes contain capitalism’s contradictions. Capitalism can then survive the crisis of one kind of capitalism by a transition to the other kind rather than a transition out of capitalism. But this outcome of a crisis is never guaranteed. A crisis in either kind of capitalism may become so severe and/or the possibilities of a transition to the other kind may become so difficult that the political space opens for a social movement demanding transition out of capitalism.

 

In the US, a crisis of private capitalism in the late 1920s was associated with oscillations to state capitalism, to Keynesian economics, to populist and socialist ideologies, and to the Democratic Party.  In the later 1970s, the reverse swings occurred. The web of interdependence among economics, politics, and culture worked in these instances to contain the contradictions of capitalism.  That web enabled the crafting of a New Deal in the 1930s to preserve capitalism from dissolution and transition to another system.  Later, in the 1960s and 1970s, that web precluded disaffection with the post-war US welfare state from producing a transition beyond capitalism and instead accomplished a relatively popular shift back to private capitalism. To paraphrase Marx, no system disappears until it has exhausted all its possible forms and oscillations among them.

 

To show how Obama’s strategy aims to secure capitalism, our argument must carefully explain its basic terms. We define "capitalism" as that system of production in which a relatively large group of people (productive laborers) sell their capacity to work to a relatively small group of different people (capitalist employers) for an agreed payment.  The capitalist employers provide the "means of production" (tools, equipment, and raw material) for the productive laborers to work with and on.  There are two key aspects of the relationship between capitalists and productive laborers.  First, what the laborers produce belongs instantly and automatically to the capitalist who sells it. Second, the revenue from that sale must exceed what the capitalist paid to buy the means of production and to hire the productive laborers.  The excess is the surplus, the fund from which the capitalist distributes portions to reproduce capitalism as a system (portions including interest to creditors, dividends to shareholders, budgets to managers and advertisers, “profits” retained for enterprise growth, etc.).

 

In the private kind of capitalism, the employers have no position within a state apparatus, and the state's functionaries exercise quite limited powers over the relationships among and between private employers and laborers.  By contrast, in the state kind of capitalism, state functionaries have much greater powers to regulate, control, and intervene in the relationships among and between employers and employees. Extreme state capitalism finds state functionaries replacing private individuals as capitalist employers (in "state-owned" enterprises) and thereby directly appropriating and distributing the surpluses produced by productive laborers.  What both kinds of capitalism have in common is the shared structure of the surplus-yielding employer/employee relationship. Obama’s strategy aims to secure that relationship by achieving a transition from a crisis-ridden private capitalism to a renewed state capitalism freed from the burdens that brought private capitalism into crisis. Obama’s means include the state’s power to tax, borrow, and spend. The plan is to relieve banks and other financial institutions of the toxic assets on their balance sheets, to subsidize the restructuring of industrial enterprises such as General Motors and Chrysler, to rationalize a too-costly medical care system, and to create demand for new “green” commodities, infrastructure, etc.

 

A social crisis of either kind of capitalism can not always or necessarily be resolved or managed by a transition to the other kind.  It might instead provoke a basic change in the capitalist relationship between employer and employee. One such basic change would end the division between employers and employees by mandating that they be the same individuals. Productive laborers might then assemble one day per work week to function collectively as their own board of directors (rather than produce output). In such reorganized enterprises, board decisions would no longer be responsive to a small group of major shareholders. Instead, board decisions would respond to the needs of the workers themselves and to the residential communities interdependent with such enterprises.

Were this to happen, a crisis in capitalism would have become a crisis of capitalism that was resolved by a transition out of capitalism. This is what Obama’s strategy, at home and abroad, seeks to avoid or, if necessary, repress.

 

II.  Global Implications of the Crisis of US Private Capitalism  

The current crisis of US capitalism began in the 1970s and was shaped in significant ways by the changing position of the US in the world economy. The 100-plus years of rising real wages for US workers came to an end in the 1970s. In that decade, computers replaced workers on a massive scale just as production moved out of the United States to cheaper locales around the world (and especially in Asia). The demand for workers in the US thus fell. At the same time, a massive social movement among adult women induced millions to enter the paid labor force for the first time. And likewise, deepening global social inequalities brought new waves of immigrants – especially from central America - looking for work in the US. In simplest terms, falling demand coupled with rising supply of workers to enable US employers to stop the historic rise of real wages in the 1970s. It never resumed in any sustained way.

 

The end of rising real wages in the US threatened to end the rising US mass demand for goods and services that drove so much of the world economy. Had that end of rising demand actually happened then, the economic history of the last 30 years would have been very different. There would have been far less export-driven economic development in so many other parts of the world. But that crisis was avoided by means of two key developments – both of which are now no longer possible. First, US workers did much more labor to raise their incomes when real wages no longer rose. [Today, US workers labor 20 per cent more hours per year than their German or French counterparts.] Second, US workers began to borrow vast sums. In these ways, the smaller crisis that might have begun with the end of rising US wages in the 1970s was postponed for 30 years. But crisis postponed has now become crisis made much worse.

 

The collapse of credit in the US – and the resulting crisis of private capitalism - is partly the outward sign of the physical, emotional, and financial exhaustion of US workers. They cannot work more hours; their families have largely collapsed as wage-earning women/mothers can no longer sustain the emotional connections of households; and their levels of debt cannot be sustained, let alone further increased. The US working class can no longer defer the consequence of the end of rising real wages: its appointment with a long stagnation or decline in its standard of living.

 

Of course, the collapse of credit and the crisis of private capitalism are also partly the result of another kind of financial exhaustion among employers. The employers’ exhaustion – very different from the workers’ - resulted from sharply greater profits. This happened because the end of employees’ real wage increases was NOT the end of rising labor productivity. Quite the contrary: because rising worker productivity increasingly exceeded real wages, capitalists’ surpluses exploded since the 1970s.

 

Corporate boards of directors used their exploding surpluses first of all to increase the salaries and bonuses of top managers. Directors and managers used those surpluses, salaries and bonuses to lead the way toward manic stock market speculations. They could afford increased and more costly mergers and acquisitions. They invented and proliferated new financial instruments that often contravened laws and regulations designed to limit financial speculation. Capitalist euphoria produced stock market, real estate and financial bubbles that all began to burst in 2000 (the stock market) and again in 2007 (real estate and finance). Capitalists also lent portions of their rising surpluses to workers in old (mortgage) and new (credit card) forms of credit. In effect, US capitalism stopped raising its workers’ real wages and gave them high interest loans instead.

 

Predictably, rising debts diverted increasing portions of workers’ incomes to repayment of principle and interest until the time came when existing debts could no longer be sustained and further borrowing was impossible. The credit system collapsed first in the US and then radiated out to financial sectors globally. The US credit collapse depreciated the housing stock which had become dependent on debt. That in turn collapsed all the industries supplying the real estate boom which further undermined debt repayment by US workers. The vicious downward cycle reinforced itself drawing first the US economy into recession and then the rest of the world. First, much of the rest of world finance had participated in US-led speculation (buying asset-backed securities based on uncollectible debts). Second, because so much of the rest of the world depended directly or indirectly on exporting to the US, it therefore depended on the flow of debt onto US consumer balance sheets. Once US credit markets collapsed and consumption levels fell in 2008, all those economies experienced economic crises. Many were more serious than the US crisis. Global trade shrank quickly.

 

Across the globe, economies are grappling with the consequences of their dependences on international credit markets and on exports to the developed economies in general and the US in particular. All are seeking to decouple from those dependencies even as they also hope for a speedy US recovery to lead the world back to the conditions of 2005-2006. Thus Iceland needs to reinvent its credit system, while China needs to develop new export markets and/or a vast internal market.

 

III.    Contradictions in Obama’s/US strategy for the world

Every step taken by the Federal Reserve and the Treasury to date, aimed at the US economic crisis, is contradictory. On the one hand, if they can stabilize and renew the credit system and generate a recovery of employment, income, and consumption, they will directly ease the crises afflicting the rest of the world’s economies. Yet at the same time, the policies of the Federal Reserve and the Treasury threaten those economies. For example, Federal Reserve and Treasury demands on US banks to lend domestically leads US banks to constrict their lending abroad because the US banks’ own capital is so inadequate. To take another example, the US subsidised reorganization of Chrysler and General Motors provides US automakers with competitive advantages damaging to other automakers. The same applies to the US seizure of the world’s largest insurance company, AIG. Consolidation of financial institutions in the US threatens (via economies of scale) smaller and less consolidated institutions in other countries. The coordination of US capitalist enterprises and the government (via state ownership, regulation, etc.) offer advantages in global competition with less or uncoordinated enterprises based in other countries. Corporate directors across the US are eager to utilize state intervention to enhance competitive positions wherever and whenever possible – with no opposition from any significant force inside the US.

 

Rising unemployment in the US forces illegal and legal Mexican immigrants to reduce or stop remittances back to Mexico while it also forces many to return to Mexico. This is destabilizing Mexico and hence the entire central American economy and societies. Parallel, more or less severe, movements happen elsewhere. Finally, each country’s reaction to the trade crisis will seek to enhance its exports and curtail its imports……a classic recipe for trouble and conflict.

 

US global economic leadership is seriously compromised. Every other country is scrambling to find ways to survive the coming realignments. Some countries are grouping together, e.g. Latin America, to enhance their chances vis-à-vis the US and the rest of the world. Others, eg. BRIC, look inward to domestic, managed expansion as an antidote to dangerous export dependence.

 

The US will have the advantage of the US dollar as world currency and the US as least risky borrower in tapping global savings to finance adjustment strategies. This will hurt other borrowers even as US recovery will help them. The US will also have the advantage of military superiority and the “right” to charge allies for the increasing costs of policing the world system as it comes under other growing critical pressures from the masses.

 

IV. Domestic Contradictions Confronting Obama’s Regime

On April 9, 2009, the well-known US polling firm, Rasmussen Research reported the results of a nationwide survey asking 1000 people whether they preferred capitalism or socialism (www.rasmussenreports.com). The report has become a cause célèbre ever since. Some 20 per cent of Americans preferred socialism and another 27 per cent responded that they were “not sure.”  The results reported for respondents under 30 years of age were even more remarkable: 33 per cent preferred socialism and another 30 per cent were unsure.  After the usual and fully predictable dismissals from the right and center right (sneers that “people don’t know what the words mean” and “no one in their right mind could prefer socialism”), the fact of the response still reverberates across US politics, especially on the left.

 

The first and perhaps most important inference enabled by the Rasmussen findings is that the legacy of the anti-socialist propaganda campaigns of the half-century after 1946 is finally fading.  As objects of mass alarmism in the US, “terrorism” and “Islam” are replacing “socialism-communism-Marxism-radicalism-anarchism” (usually treated synonymously in the US). Obama’s campaign and now his presidency played a key, although unintentional, role in making this legacy fade. Ironically, it was chiefly right-wing Republicans’ attacks on Obama as “a socialist bringing socialism to America” that produced an outcome the Republicans neither foresaw nor wanted. Many millions of Americans – and especially those under 30 who disproportionately favored Obama over McCain – surprised the Republicans by their reaction to attacks on Obama as a socialist. They basically concluded that if Obama was a socialist, “then maybe socialism is not so bad.”

 

The second key inference from this poll is that a significant space is growing for a renewal of left politics in the US.  It is true that the general notion of socialism that has become acceptable – and even chic – among large sectors of the US public is very broad and very vague. It now refers to very modest welfare state interventions aimed to provide more public services and to use taxation to reduce wealth and income inequalities somewhat. Nonetheless, the return of moderate notions of socialism into public discussion is a far, far more favorable situation for efforts to build a renewed US left than has been available for decades.

 

The third inference is that the immense crisis in the US that has cost millions of lost jobs and foreclosed homes over the last year is deeply shaking confidence in capitalism as such. One of the few important public influences of the still very small active US left has been to help transform the public perception of this as a “sub-prime mortgage” or even a “financial” crisis into the quite different concept of “a crisis of capitalism.” Across the political spectrum and in many mass media, it has suddenly become common to see, hear or read explicitly anti-capitalist arguments alongside increasingly strained efforts to defend capitalism.

 

Thus, just as the Republican attacks on Obama’s “socialism” facilitate a new, more positive public attitude toward socialism, the economic crisis undermines public confidence in capitalism. This combination of effects on the capitalism-vs-socialism debate opens important new opportunities for the US left.

 

At the same time, Obama also stands as the dominant symbol as well as leader of an absolutely pro-capitalist response to the crisis. Every state intervention to date by the Obama administration is officially promoted as temporary: everything will be returned to private capitalist enterprises “once the crisis is past.” The overwhelming bulk of state monies allocated to stimulate the economy flow  first into the hands of private capitalist enterprises (via state purchases of “toxic” – underperforming – securities and loans from banks and other financial corporations, corporate tax cuts, capital infusions into enterprises, government loans to them, and government purchases of commodities from them). By contrast, a tiny portion of the Obama “stimulus” program flows to workers directly as wages. Obama refuses to discuss, let alone implement any government direct hiring program. Nor does Obama favor direct aid to homeowners to enable them to stay in their homes. He insists that his larger and more extensive Keynesian policies can and will overcome the crisis. He promises to “return” the US (and the world) to a prosperous and growing capitalist world order.

 

Obama is thus a contradictory figure for the current domestic US conjuncture. To see this, consider the rapid explosion of unemployment and homelessness across the US over the last year. The stock market’s collapse has destroyed millions of private pensions; older workers postpone retirement so that young people face many fewer job openings. Unemployed workers cannot make mortgage payments and so lose their homes. Medical insurance, attached to their jobs for most Americans, vanishes when they become unemployed. Illness thus plunges the unemployed into total disaster. Whole tent cities spring up under the bridges and at the margins of many urban areas. The reality has become millions of unemployed and homeless people staring across the street at vacant homes, stores, offices, and factories. And millions more still in their jobs and homes fear such a future. Together with the new interest in socialism, associated with Obama, and the loss of confidence in capitalism, one might have expected an explosion of new left actions and mass mobilizations of protests against fast worsening economic and social conditions.

 

Obama is one important reason why that has NOT happened.  Having campaigned on the slogan “Hope and Change,” by May, 2009, it had become clear that while change was minimal and slow , Obama still had mass hope to rely upon. That is, the mass base of his constituencies remained so grateful that Bush was gone that they more than willing to give Obama more time for his program “to work.” That part of Obama’s base most damaged by the capitalist crisis – African-Americans, young women, etc. – have become more active in protesting against deteriorating job and housing conditions and against bailouts of big banks and highly paid executives. But all their protests have so far carefully avoided criticism of Obama. No national protests or marches to Washington are planned that might embarrass Obama. He remains the workers’ best friend and hope in Washington; hence his continuing popularity in the polls. The masses still support him. Obama’s large corporate friends and financial backers likewise reward his continued hold on popular support despite his very capitalist-friendly crisis program.

 

It remains politically risky to criticize Obama. The alliance around Obama begins immediately to fracture once dissolving pressure is applied on the glue that holds that alliance together.  Any left criticism of the pro-capitalist goals, tactics, and personnel of Obama’s economic advisors brings counterattacks that such criticism only aids Republican reactionaries. Likewise, business and centrist criticism of Obama’s modest proposals for tax reform brings counterattacks that a more humane capitalism is needed to maintain the Obama alliance and keep it on track to “solve” the economic crisis. The ability of the Obama phenomenon to survive depends on keeping its contradictions and divisions from exploding. And that, in turn, likely depends heavily on how the current crisis evolves.

 

Obama’s strategy has a fundamental premise: that the crisis is largely a temporary, technical problem with markets – especially financial markets – that malfunctioned. These markets need now to be fixed via institutional change, reorganized state regulation, and state interventions of cash infusion and loan guarantees. Once these steps are taken, the underlying health of the “real” economy (production and consumption of commodities) will reassert itself as finance resumes its “proper” task of merely facilitating production and consumption of commodities.  Hence Obama’s promise that mass hope in him will be justified by the resumption “soon” of economic well being.

 

However, and following the argument sketched in this paper, Obama’s premise may well be incorrect. There is ample evidence that the US working class is physically exhausted, emotionally stressed, and financially overburdened with debt such that it cannot resume, let alone expand, pre-crisis levels of consumption spending. It cannot take on more debt, and may indeed be inclined for years to come to reduce its crippling level of debt. This would likewise hobble demand for consumer goods from corporations producing inside the US and from the rest of the world’s exporters. Given the multi-decade period during which rapidly rising US consumption drove much of the world’s economy, this change inside the US would likely refocus development everywhere. While it is impossible to predict the consequent changes in resource use, world trade, capital flows, etc., to presume with Obama that it is possible to reconstruct the pre-crisis capitalist world economy seems unwise and unwarranted. Moreover, if Obama’s policies could actually return the world economy to the conditions of 2005 and 2006, that could well mean another breakdown thereafter (rather like the crash of 1937 plunged US capitalism back down into the depths of depression after what had been mistakenly thought to be earlier “recovery”). 

 

No one can know how much time Obama will have politically to manage the current crisis, nor how successful his steps will be and for how long. What can be said here is that the political situation inside the US now is much more fluid and much more open to the left than it has been for a long time. If the crisis lasts, if its deep causes make a return to the status-quo-ante impossible, then the Obama  more like FDR (whose deepening crisis in the early 1930s drew him to the left) or revert ever more to a Clinton-like embrace of business and moderate Republican positions. And since neither of these options offers any guarantees of containing, let alone reversing, capitalism’s crisis, the opportunities for the US left are better than they have been for a generation. Indeed, the economic crisis and Obama election have combined to promote the political fortunes more of the left than the right. The latter was badly bruised by the Bush regime’s decline and the Obama election. Obama is courting the business right and isolating the extreme right whose racism, jingoism, and celebration of guns and fundamentalist religion are in at least a temporary state of decline with much less political influence than in recent years.

 

A key question for the US now is whether the long-term decline of the labor movement and the left generally can be reversed in the conditions created by the capitalist crisis and the Obama election. In this regard, the cooperation between the Obama administration and the United Auto Workers (UAW) union in massively contracting the Chrysler and General Motors corporations cannot be taken as a positive sign. It is more likely that altogether new strategies and organizations for mass interventions will need to emerge over coming months and years if the possibilities for a renewed US left are to be realized. However, the possibilities are real. Achieving them would transform the US and thereby the international order.   

 

V.  The wild card: mass interventions

Conflicts among the US, Europe and Japan; conflicts between them and the major exporters to them; and conflicting demands from developing and poorer countries will shape global politics in the near future. Obama is pursuing the US corporate interest in all of them. While US hegemony is challenged, it remains strong and will likely prevail, partly because of the disunion of its potential adversaries, chiefly the Europeans.

 

The only force capable of changing this outcome is the working class in each country. Everything now depends on its attitude and actions during this time of capitalist economic weakness and political disarray. If it lines up dutifully behind each nation’s capitalist leaders, supporting their maneuvers against their counterparts in other countries, the mass’s influence will be marginal. If each nation’s working class demands that policies to cope with the capitalist crisis not be paid for by lost jobs and lower wages, it can limit the maneuverability of its leaders in their struggles with other countries’ leaders. That is a risky situation that can have negative outcomes that get blamed on the workers.

 

However, suppose that national working classes took a different position, namely that the solution to this global capitalist crisis was an end to capitalism. And suppose further that they meant by that not only the macro level - planning instead of markets and socialized rather than private property in means of production - but also the micro level - transformation of enterprises’ internal organizations such that the workers became the collective board of directors of each enterprise. In that case, the goal of workers’ interventions would be a new world economy built on the foundation of a post-capitalist economic system – at both the macro and micro levels. That would be a profoundly different world economy than the reconstitution of capitalism being attempted by the leaders of business and governments today.

 

Of course, we do not yet have the organizational means or the ideological conditions to enable such a working class program for and intervention in today’s capitalist crisis. If we do not create it, the world will suffer through yet another capitalist crisis that (1) merely changes the form of capitalism from private to state, (2) unjustly distributes the costs and pains of the crisis within and across nations, and (3) forces us to await the next in the endlessly recurrent sequence of capitalist crisis. Absent working class intervention, the current crisis remains a crisis in capitalism and not of capitalism.