The Election's Rhetoric of American Anti-Communism
by Lil Joe
In this article I will explain Marx, Marxism, Sweden, Socialism, Communism, Keynesian economic theory and practices contrasted to Monetarism in theory and practice, taxes, redistribution and other words and concepts distorted by McCain and Palin, FOX News, the Republicans and others daily on television. They are playing to the ignorance and nationalist delusions of American workers, and it is that ignorance and those delusions that I address. I am not defending the Keynesian policies of the democrats or Obama's representation of it and that Party. Communism is opposed and Marx distorted and attacked by both the capitalist's Democratic Party as well as Republican Party. I am defending Communism and presenting Marx and Engels' actual positions and writings.
The Republicans have called the Keynesian economic theory and policies, as represented by the Swedish economy, "socialist". This is of course ridiculous, because the Swedish economy is capitalist commodity production by wage workers, the exploitation of wage labor by capital. I have posted an article on the history of the Swedish economy, one on the Social-Democratic Labor Party's government instituting a social wage and raising the Swedish workers standard of living to one of the highest of all capitalist countries, much higher and more secure than the ignorantly anti-socialist American workers, and Malcolm X's comment on Martin Luther King's praise of Sweden ending poverty, homelessness, and violence in the country.
The real difference between the American and Swedish economies is not one of two opposing modes of production and appropriation. Both are based on capitalist ownership of the means of production and the proletariat are propertyless wage workers. In Sweden, as well as in the United States the capitalist class exploits by appropriation of labor by money, and total ownership of the products - wealth - produced by that labor is owned by capitalists. Rather, the difference between Sweden and America is that the Swedish workers, the Swedish proletariat knows it and the American workers don't.
The Swedish workers are class conscious socialists with powerful trade unions that have created a Social-Democratic Labour Party to represent it in government. The American workers on the contrary don't know themselves to be an exploited proletariat, but a delusional "middle income bracket", which has no consciousness of relations of production and labor appropriation, thus no consciousness of exploitation in the labor process. In Sweden as in the United States, the capitalists as owners of the means of production and purchasers of labor power, at the end of the working days the capitalists own all the wealth created by it, and the proletarians are "paid" paper certificates, money notes by which to purchase from the capitalists the products produced by the workers themselves.
Socialism is on the contrary, an economic mode of production and appropriation in which the productive forces are taken over by the workers, held in common as public property, and that thereby these workers phase out capitalist commodity production and wage labor, the markets and money is done away with. It is on this basis that a society of free associated labourers organize production and distribution according to the principles of from each according to his ability, to each according to his need.
Since the Republicans have brought Marx's name and quotation into this, it is fair to quote the full quote from Marx on this economic process from Capitalist commodity production and appropriation of labor power through markets to the communist mode of production and appropriation of use-values, stripped of commodity form as the productive forces as public property of workers are stripped of capital form. Capitalism itself makes this both possible and necessary, by what is happening in the break down of the world economy today:
"The real barrier of capitalist production is capital itself. It is that capital and its self-expansion appear as the starting and the closing point, the motive and the purpose of production; that production is only production for capital and not vice versa, the means of production are not mere means for a constant expansion of the living process of the society of producers. The limits within which the preservation and self-expansion of the value of capital resting on the expropriation and pauperisation of the great mass of producers can alone move — these limits come continually into conflict with the methods of production employed by capital for its purposes, which drive towards unlimited extension of production, towards production as an end in itself, towards unconditional development of the social productivity of labour. The means — unconditional development of the productive forces of society — comes continually into conflict with the limited purpose, the self-expansion of the existing capital. The capitalist mode of production is, for this reason, a historical means of developing the material forces of production and creating an appropriate world-market and is, at the same time, a continual conflict between this its historical task and its own corresponding relations of social production.
A drop in the rate of profit is attended by a rise in the minimum capital required by an individual capitalist for the productive employment of labour; required both for its exploitation generally, and for making the consumed labour-time suffice as the labour-time necessary for the production of the commodities, so that it does not exceed the average social labour-time required for the production of the commodities. Concentration increases simultaneously, because beyond certain limits a large capital with a small rate of profit accumulates faster than a small capital with a large rate of profit. At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. The mass of small dispersed capitals is thereby driven along the adventurous road of speculation, credit frauds, stock swindles, and crises. The so-called plethora of capital always applies essentially to a plethora of the capital for which the fall in the rate of profit is not compensated through the mass of profit — this is always true of newly developing fresh offshoots of capital — or to a plethora which places capitals incapable of action on their own at the disposal of the managers of large enterprises in the form of credit. This plethora of capital arises from the same causes as those which call forth relative over-population, and is, therefore, a phenomenon supplementing the latter, although they stand at opposite poles — unemployed capital at one pole, and unemployed worker population at the other. [ Karl Marx: Capital Volume III Part III Chapter 15 http://www.marxists.org/archive/marx/works/1894-c3/ch15.htm]
At the same time, Engels wrote, in Socialism, Utopian and Scientific:
In these crises, the contradiction between socialised production and capitalist appropriation ends in a violent explosion. The circulation of commodities is, for the time being, stopped. Money, the means of circulation, becomes a hindrance to circulation. All the laws of production and circulation of commodities are turned upside down. The economic collision has reached its apogee. The mode of production is in rebellion against the mode of exchange, the productive forces are in rebellion against the mode of production which they have outgrown.
The fact that the socialised organisation of production within the factory has developed so far that it has become incompatible with the anarchy of production in society, which exists side by side with and dominates it, is brought home to the capitalists themselves by the violent concentration of capital that occurs during crises, through the ruin of many large, and a still greater number of small, capitalists. The whole mechanism of the capitalist mode of production breaks down under the pressure of the productive forces, its own creations. It is no longer able to turn all this mass of means of production into capital. They lie fallow, and for that very reason the industrial reserve army must also lie fallow. Means of production, means of subsistence, available labourers, all the elements of production and of general wealth, are present in abundance. But "abundance becomes the source of distress and want" (Fourier), because it is the very thing that prevents the transformation of the means of production and subsistence into capital. For in capitalistic society the means of production can only function when they have undergone a preliminary transformation into capital,into the means of exploiting human labour-power. The necessity of this transformation into capital of the means of production and subsistence stands like a ghost between these and the workers. It alone prevents the coming together of the material and personal levers of production; it alone forbids the means of production to function, the workers to work and live. On the one hand, therefore, the capitalistic mode of production stands convicted of its own incapacity to further direct these productive forces. On the other, these productive forces themselves, with increasing energy, press forward to the removal of the existing contradiction, to the abolition of their quality as capital, to the practical recognition of their character as social productive forces. [ Engels Anti-Duhring Part III Socialism: http://www.marxists.org/archive/marx/works/1877/anti-duhring/ch24.htm]
It was in this context that the workers have the practical need engendered theoretical understanding for the possibility and the necessity to take the social productive forces and create a communistic mode of production and appropriation, ending capitalist commodity production and wage labor, that Marx wrote:
"Within the co-operative society based on common ownership of the means of production, the producers do not exchange their products; just as little does the labor employed on the products appear here as the value of these products, as a material quality possessed by them, since now, in contrast to capitalist society, individual labor no longer exists in an indirect fashion but directly as a component part of total labor.
The phrase "proceeds of labor", objectionable also today on account of its ambiguity, thus loses all meaning. What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges.
Accordingly, the individual producer receives back from society -- after the deductions have been made -- exactly what he gives to it. What he has given to it is his individual quantum of labor. For example, the social working day consists of the sum of the individual hours of work; the individual labor time of the individual producer is the part of the social working day contributed by him, his share in it. He receives a certificate from society that he has furnished such-and-such an amount of labor (after deducting his labor for the common funds); and with this certificate, he draws from the social stock of means of consumption as much as the same amount of labor cost. The same amount of labor which he has given to society in one form, he receives back in another.
Here, obviously, the same principle prevails as that which regulates the exchange of commodities, as far as this is exchange of equal values. Content and form are changed, because under the altered circumstances no one can give anything except his labor, and because, on the other hand, nothing can pass to the ownership of individuals, except individual means of consumption. But as far as the distribution of the latter among the individual producers is concerned, the same principle prevails as in the exchange of commodity equivalents: a given amount of labor in one form is exchanged for an equal amount of labor in another form.
Hence, equal right here is still in principle -- bourgeois right, although principle and practice are no longer at loggerheads, while the exchange of equivalents in commodity exchange exists only on the average and not in the individual case.
In spite of this advance, this equal right is still constantly stigmatized by a bourgeois limitation. The right of the producers is proportional to the labor they supply; the equality consists in the fact that measurement is made with an equal standard, labor.
But one man is superior to another physically, or mentally, and supplies more labor in the same time, or can labor for a longer time; and labor, to serve as a measure, must be defined by its duration or intensity, otherwise it ceases to be a standard of measurement. This equal right is an unequal right for unequal labor. It recognizes no class differences, because everyone is only a worker like everyone else; but it tacitly recognizes unequal individual endowment, and thus productive capacity, as a natural privilege. It is, therefore, a right of inequality, in its content, like every right. Right, by its very nature, can consist only in the application of an equal standard; but unequal individuals (and they would not be different individuals if they were not unequal) are measurable only by an equal standard insofar as they are brought under an equal point of view, are taken from one definite side only -- for instance, in the present case, are regarded only as workers and nothing more is seen in them, everything else being ignored. Further, one worker is married, another is not; one has more children than another, and so on and so forth. Thus, with an equal performance of labor, and hence an equal in the social consumption fund, one will in fact receive more than another, one will be richer than another, and so on. To avoid all these defects, right, instead of being equal, would have to be unequal.
But these defects are inevitable in the first phase of communist society as it is when it has just emerged after prolonged birth pangs from capitalist society. Right can never be higher than the economic structure of society and its cultural development conditioned thereby.
In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life's prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly -- only then then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!
As Engels put it:
With the seizing of the means of production by society production of commodities is done away with, and, simultaneously, the mastery of the product over the producer. Anarchy in social production is replaced by systematic, definite organisation. The struggle for individual existence disappears. Then for the first time man, in a certain sense, is finally marked off from the rest of the animal kingdom, and emerges from mere animal conditions of existence into really human ones. The whole sphere of the conditions of life which environ man, and which have hitherto ruled man, now comes under the dominion and control of man who for the first time becomes the real, conscious lord of nature because he has now become master of his own social organisation. The laws of his own social action, hitherto standing face to face with man as laws of nature foreign to, and dominating him, will then be used with full understanding, and so mastered by him. Man's own social organisation, hitherto confronting him as a necessity imposed by nature and history, now becomes the result of his own free action. The extraneous objective forces that have hitherto governed history pass under the control of man himself. Only from that time will man himself, with full consciousness, make his own history — only from that time will the social causes set in movement by him have, in the main and in a constantly growing measure, the results intended by him. It is the humanity's leap from the kingdom of necessity to the kingdom of freedom. [ http://www.marxists.org/archive/marx/works/1877/anti-duhring/ch24.htm ]
What Marx and Engels wrote in their first truly collaborative work, "The [Critique of] German Ideology" is itself clear on this discription of human beings in this communist society:
"Further, the division of labour implies the contradiction between the interest of the separate individual or the individual family and the communal interest of all individuals who have intercourse with one another. And indeed, this communal interest does not exist merely in the imagination, as the "general interest," but first of all in reality, as the mutual interdependence of the individuals among whom the labour is divided. And finally, the division of labour offers us the first example of how, as long as man remains in natural society, that is, as long as a cleavage exists between the particular and the common interest, as long, therefore, as activity is not voluntarily, but naturally, divided, man's own deed becomes an alien power opposed to him, which enslaves him instead of being controlled by him. For as soon as the distribution of labour comes into being, each man has a particular, exclusive sphere of activity, which is forced upon him and from which he cannot escape. He is a hunter, a fisherman, a herdsman, or a critical critic, and must remain so if he does not want to lose his means of livelihood; while in communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic." [ http://www.marxists.org/archive/marx/works/1845/german-ideology/ch01a.htm ]
This is what Marx and Engels described as communism. It has nothing to do with a state taxing capitalists and giving money to those who pay no taxes, because capitalism, the state and taxes will no longer exist. McCain, Palin, and "Joe the Plumber" are either extremely ignorant, or out right liars.
Based on all this what Marx and Engels wrote, contexting what is meant by "from each according to his ability, to each according to his need" in a classless society in which there is no enslaving division of labor, no market, no money, no wage, profits and no state, "From each according to his ability, to each according to his need" has not only nothing to do with "redistribution" or "spreading" of bourgeois wealth through taxation of profits, but is the exact opposite: there is no such thing as bourgeois wealth and proletarian poverty, there is no class conflict and no State, therefore there is no taxes and no government.
At the conclusion of this article I will post the facts about Sweden. I will be clear that the Republicans are lying demagogues when they call Sweden a "socialist country". The problem which the Republicans can exploit is that Americans have never studied the empirical concepts of economic mode of production and appropriation on an objective basis, based on the universal economic concepts of economic theory and practice, by which they could compare and contrast it to the economic mode of production and appropriation advocated by Marx and Engels vis-a-vis Sweden and the United States.
The general level of American ignorance of economics is in the article you cite below : the "Reporter Barbara West" identify Sweden as a socialist economic mode of production and appropriation, which she implicitly contrasts to the American economic mode of production and appropriation, capitalism. She bases this supposed contrast on tax policy. In response, Joe Biden disagreed that Obama wanted to adopt the Swedish model of so-called "socialism".
The general ignorance of economic theory in America, their high level of stupidity concerning economics as deliberately pumped into them through socialization and education, reinforced in popular culture in movies and television, is these capitalist oriented institutions and means of culture and education has lied to the American workers, and those lies have been internalized by individuals as groups assimilated into the programmed, and deliberately promoted ignorance pumped into America's version of capitalist culture.
Americans believe that the economic mode of production and appropriation is separated and distinct from all others on the planet, and is both better than all others, envied by some, hated by others, because - they are taught, and they therefore believe - it is: (1) "free" and [therefore] (2) "the richest, greatest, most blessed country on earth, and in history" : "God blesses American", the "city on a hill", "beacan of freedom and democracy", to which all of humanity aspire.
Americans believe that everyone on earth live in backward, unfree, immobile class cultures, and that it is only in America that "freedom" and "opportunity" and consequently "only in America" that upward mobility "from rags to riches" exist. Americans are taught that it is only in America that children of "humble origins" [i.e. workers] can grow up to become a head of state. The Americans are taught that this makes America unique.
American workers don't know the real American exceptionalism is that the government is Constitutionally a class based system, where all of the Senators and the President are wealthy or rich and that they therefore select the federal judiciary and determine the cabinet, while the House of Representatives are really show, filled by demagogues; while, by contrast, in European Democracies there are no Senates, Parliaments are elected by voters on the basis of class conscious partisanship, that therefore the Conservatives are epresentatives of Capitalists, and that Labor, Socialist and Communist Parties are built by and socially and financially based on trade unions. In Western Europe, all of the Members of Parliament from the Labor, Socialist and Communist Parties are wage workers, not rich and not demagogues. When in Europe the Labor, Socialist or communist party win the majority, that the majority of parliament are workers, and the government, the cabinet and the prime ministers are selected by workers, the trade unions upon which those labor and socialist parties are based.
Yet, in the United States, when a son of the working class becomes President, whether an Abe Lincoln or a Barak Obama, it is only after they had become themselves rich, and attached to capitalist wealth. The Republican Party that selected Lincoln was the political representative of Northern industrial and finance capital in opposition to the Southern democratic Party, that represented agricultural capital.
The Democratic Party today represents domestic industrial capital while the modern Republican Party represents the transnational and finance capital networks. This is what this present election is all about.
The Obama's so-called tax cuts for the so-called middle class is a Keynesian economic strategy that is nothing but enabling the industrial and domestic capitalists to continue paying low wages to workers, while at the same time enabling those workers to have more money to buy more commodities from those capitalists. It is a double boon for American domestic capitalists : it enables the capitalists to continue to pay low wages to workers - the same as tips enable capitalists to pay low wages to waitresses by subsidising those wages.
The American workers need more money to cover the rising cost of living. Those workers would be forced to take to the streets in strikes and demonstrations - real class war - to force capitalists to raise wages. The capitalists will be forced by declining rates of profits to resist those wage demands by calling on the State. The Obama plan, while pretending to orient toward workers by giving them tax cuts, in reality by every dollar the government gives to workers in the form of tax cuts are actually dollars that the workers won't be demanding from capitalists in wage increases. Similarly, by providing workers with universal health care programs and tax credits to capitalist who do so, this too benefits capitalists by saving them the confrontations of workers demanding these benefits otherwise appropriated from capitalist profits. The income and payroll tax cuts and universal health care benefits that the Obama government will provide to workers will enable the capitalists to preserve that money in their profits. With these tax cuts to capitalist employees making under $250,000, enables those employees to purchase American made products.
This has more to do with Henry Ford than with "Swedish socialism". Ford believed that paying people more would enable Ford orkers to afford the cars they were producing and be good for the domestic capitalists.
The real ideological battles between the Democratic Party and the Republican Party, ostensibly concerning "high taxes and big overnment" vs "lower taxes and small government" is really about the advocacy's of the rival capitalist economic theories and practices.
"John Maynard Keynes's ... , The General Theory of Employment, Interest, and Money, was published in 1936. The book constituted a vast assault on the classical economics tradition in which he had been raised. The era that had nurtured classical economics had been destroyed by the first world war, and for Keynes the cataclysms since had demonstrated the tradition's inadequacies. A new synthesis was necessary, and that is what Keynes sought to create.
In particular, he concluded that classical economics rested on a fundamental error. It assumed, mistakenly, that the balance between supply and demand would ensure full employment. On the contrary, in Keynes's view, the economy was chronically unstable and subject to fluctuations, and supply and demand could well balance out at an equilibrium that did not deliver full employment. The reasons were inadequate investment and over-saving, both rooted in the psychology of uncertainty.
The solution to this conundrum was seemingly simple: Replace the missing private investment with public investment, financed by deliberate deficits. The government would borrow money to spend on such things as public works; and that deficit spending, in turn, would create jobs and increase purchasing power. Striving to balance the government's budget during a slump would make things worse, not better. In order to make his argument, Keynes deployed a range of new tools -- standardized national income accounting (which led to the basic concept of gross national product), the concept of aggregate demand, and the multiplier (people receiving government money for public-works jobs will spend money, which will create new jobs). Keynes's analysis laid the basis for the field of macroeconomics, which treats the economy as a whole and focuses on government's use of fiscal policy -- spending, deficits, and tax. These tools could be used to manage aggregate demand and thus ensure full employment. As a corollary, the government would cut back its spending during times of recovery and expansion.
Keynes intended government to play a much larger role in the economy. His vision was one of reformed capitalism, managed capitalism -- capitalism saved both from socialism and from itself. He talked about a "somewhat comprehensive socialization of investment" and the state's taking "an ever greater responsibility for directly organizing investment." Fiscal policy would enable wise managers to stabilize the economy without resorting to actual controls. The bulk of decision making would remain with the decentralized market rather than with the central planner.
With the outbreak of World War II, Keynes moved on to the questions of how to finance the war and then how to develop a postwar currency system. He was one of the fathers of the Bretton Woods accord, which established the World Bank and the International Monetary Fund, and which put in place a system of fixed exchange rates."
Excerpted from the profile of John Maynard Keynes included within this site, which, in turn, has been adapted from the book Commanding Heights by Daniel Yergin and Joseph Stanislaw, 1998 ed.
The Keynesian economic theory, as it was developed in America by the "Wisconsin School" and put into practice by the Democratic Party led politically by President Franklin D. Roosevelt : it was called "New Deal". This is what the Republicans now denounce as "big government", ostensibly because it takes from the rich in taxes and gives to the poor through "spending" - i.e. Social Security, Welfare, Food Stamps and so on actually helps American capitalists in the context of this economic crisis of relative overproduction. Steve Pearlstein writes that economic conditions have halted expanded consumerism for the foreseeable future. He says in an Oct. 15 Washington Post article, "We are at the beginning of a transition period in which our collective spending as a nation will go from roughly 6-7 percent more than what we produce to closer to 2-3 percent less than we produce. We're going to have to consume less, which means a temporary reduction in our standard of living." Thus, the appropriation of money from the wealth created by labor to "redistribute" to workers and those unemployed enables the capitalist class to sell their otherwise unsaleable commodities.
Neither Lord Maynard Keynes nor was the multimillioniare Franklin Roosevelt "socialist", any more than Volkar and Obama are "socialists". Government deficit spending was to the benefit of American industrial capitalists.
Called "demand side economics", in the Great Depression Government deficit spending by putting money in the hands of consumers to purchase goods and thereby engender capital investments to meet the growing consumer demand. Thus, to end the Depression and restore production by a subsidized market of consumers. This was "big government", which really meant government deficit spending worked to end the Great Depression by America both providing arms to its allies ("Lend-Least") and entering the war, spending on American war industries making warfare commodities and the government buying them. This was the Keynesian basis for the Arms War in the 1950s and 60s, augmented by the Space race. In the 1950s and into the 60s, however, the Marshall Plan and the rebuilding of the infrastructure and industries in war ravaged Europe and Japan, provided for the expansion of the American industrial base without deficit spending in these arenas because the export and sale of capital was purchased abroad.
For all their attacks on "big government" and declarations of "reigning in spending", the Reagan, Bush and McCain Republicans are still participants in big government intervention in the economy as the big spender in the Military-Industrial Complex: they ran the economy into the ground by tax cuts for capitalists simultaneously with increasing military spending, which is what McCain-Palin pledge to continue and to increase tax cuts for capitalists and increased military spending and wars. On the other hand, as the Permanent Arms Economy began to become inflationary government spending in the 60s and into the 70s, and the rebuilt economies of Germany and Japan stood on their feet and became competitors rather than mere customers. The Nixon Administration was compelled to abandon the Gold Standard for American currency. Yet, America's remained the strongest economy as far as production of wealth was concerned, and thus the dollar remained strong, and an anchor for IMF affiliates. But, this began to slip in the late 70s, which was ascerbated by the Oil Embargo following the US backed Israeli aggression on Arab and Muslim nations in the Middle East.
In the 80s, the Keynesian model was collapsing into stagnation recession and inflation - stagflation. Republicans produced ideologues and demagogues which begin to attack Keynesian economic deficit spending. They were jingoistic, thus they continued the real deficit spending in the arms races; and, on the other hand they were also racists who played to the stupidity of white workers by associating government deficit spending with welfare, ghetto queens, irresponsible black males and promiscusious black teenage females making welfare a "lifestyle". I am of course talking about Ronald Reagan and Phil Grahm. This is also what McCain and Palin are doing in both calling for increased deficit spending in the military industrial complex on one hand, and denouncing Obama's Keysinian economic plans as wanting to "spread the wealth from hard working 'real Americans' to lazy unemployed other Americans who don't work or "pay taxes".
The monetarist economic theory of Milton Friedman is the Republican Party ideological model, economists of the "Chicago School". The economic policies of Greenspan, which the finance capitalists preferred, to reduce government spending (end the Keynesian model) to make inflation the greatest worry.
"In the decades following World War II, conservative economics was in a sorry state. Keynesianism had conquered everything -- even Richard Nixon said, "We are all Keynesians now." Much of the reason was because Keynesianism seemed to work. Under Keynesian policies, nations were no longer suffering depressions; and when recessions hit, these policies seemed to reduce them.
"In those postwar years, the only real torchbearer for conservative economics was Milton Friedman. Although he accepted Keynes' definition of recessions, he rejected the cure. Government should butt out of the business of changing the money supply, he argued. It should keep the money supply steady, expanding it slightly each year only to allow for the natural growth of the economy and a few other basic factors. Market forces would cause inflation, unemployment and production to adjust themselves automatically and efficiently around this fixed amount of money. This policy he named monetarism.(1)
"But what about recessions, and the success of Keynesian policies in cutting them short? Friedman responded with a point that was historically true: that past economic slumps had not started by people spontaneously hoarding money. Instead, these slumps were caused when nations withdrew money from their money supply. Recall that, prior to World War II, the world operated under a unified gold standard, and international trade was paid in gold. Whenever a nation ran up a huge trade deficit, it paid its bill out of its gold reserves, thus causing a reduction in its domestic money supply. This in turn caused the depressions that wracked so many national economies. Friedman argued that if the money supply were simply held steady, nations wouldn't suffer from depressions in the first place, and would thus have no need to rely on deflation or Keynesian policies to correct them.
"Friedman then went on to make a more direct argument against Keynesian policy. Such policy was unstable and harmful, he argued. History showed that whenever the central bank expanded the money supply, there were "long and variable lags" between implementation and effect. Sometimes the economy would recover on its own before the effects of extra money hit, which would only overheat the economy and raise inflation. So in response, the central bank might put on the brakes, but again, there would be no predicting when the effects of this action would take place, possibly causing a deeper recession than normal. The unpredictability of these long and variable lags made the usefulness of active monetary policy doubtful at best.
"Friedman's arguments seemed compelling at the time. Yet today's economists regard them as more clever than accurate. To prove his points, Friedman had to devise a different definition of "money" from what most economists use. Most economists define "money" as cash in circulation and its close equivalents, like checking accounts. Friedman, on the other hand, used "monetary aggregates," which included virtually everything in the financial sector, including such hard-to -reach money as savings deposits, money market accounts, and other financial instruments. [Milton Friedman and Monetarism * http://www.huppi.com/kangaroo/L-chimonetarism.htm ]
Monetarism and anti-Kenyesian policies was called supply-side economics under Ronald Reagan, and neoliberal globalization from Bush I, through Clinton to Bush II. This ended with the 2008 finance collapse and the Bush II government - backed by McCain as well as by Obama, nationalizing banks and dolling money to industrial capitalists to offset falling rates of profits.
What the Obama presidential campaign means is a return to Keynesian economic policies. Rather than the Monetarist Reagan-Bush I&II "trickle down" economics, combating declining rates of profits by capital gains and other tax cuts, so-called tax incentives, the Obama plan is to address this problem by allowing capitalists to maintain those profits by subsidizing wages with tax cuts to their employees - this will it is supposed keep those workers content and from demanding higher wages vs. inflation. It is ridiculous for the Republicans to call the Obama's Paul Volker's advised neo-Keynesian economic plan "socialist".
The actual problem that is confronted by U.S. capitalism is that the European economies have not only been restored since the successes of the Marshall Plan, but along Japan, Germany and Northern Europe generally have the most technologically advanced industries in the world. Thus, the combined nations of the European Union with a common currency on the one hand, and the technologically advanced economies of Japan and the emergining technological base in India and the industrial powers of China in China have shifted the economic center from the United States to the European Union and Asia.
Setting aside the polemics of the Keynesians and the Monetarists, which had in common that money rather than production of new wealth was the key to economic wealth, the 2008 collapse of American finance capital and of the Stock Exchanges prove that the classical economists, and the Marxian economic theorists were right: labor expended in commodity production creates wealth, and money is subordinated as a material means of circulation of wealth. It has taken but three decades to prove it, but the removal of American currency from the Gold Standard on one hand, and more importantly the export of industrial capital by American industrialists from the United States to China and technology to India on the other, has made U.S. currency worthless. It is because industrial revolutionary developments in the productive forces in China that China is the main producer of U.S. wealth, that China has a trillion dollar surplus and the main ownership of U.S. government debt.From 1978 to July 2008, more than 16,613 U.S. companies were sold to foreign corporations. The steel, publishing, textile, machine tool, automobile, and electronics industries declined sharply. By 2006 American manufacturers suffered a twenty-two percent structural cost disadvantage compared to overseas competitors through taxes, health and pension benefits, litigation, regulation, and unequal environment protection. In 2006, $1 in $4 of US consumption on manufactured goods went immediately and directly to imports. In 2007 China alone exported over $321 billion in goods to the United States compared to the $62 billion in goods we exported to them. The U.S. trade deficit, estimated to exceed $800 billion in 2008, is costing $1.5 million per minute in remittance to foreign companies. Three million high-paying manufacturing jobs were lost between 2000 and 2005 alone. The U.S. lost 63 thousand jobs just in February of 2008. Foreign manufacturers operating in the U.S. accounted for over twenty percent of our exports and manufacturing assets, and a large percentage of our employment in 2006.
As of December, 2007, the U.S owed fifty-three percent of its debt to foreign countries and other international interests. This is 25.5 percent of our total national deficit, and we finance nearly 100 percent of all new borrowings from foreign interests. Our competitors are now our bankers. High-paying goods- producing industries have lost net employment over the past twenty-seven years, while lower paying non-tradable services-providing employment has doubled. In 2004, China and India graduated a combined 950,000 engineers versus 70,000 in the U.S. The United States ranks near the bottom of science/ math proficiency. http://www.globalresearch.ca/index.php?context=va&aid=10697
It is not by accident that the European Union has the most advanced technology in the world, building the means for reproducing the "big bang" by scientific experiment, that their currency, the Euro is more desirable than the U.S. dollar - as was shown recently when the American government obtaining 700 billion dollars to put into its banks was followed by the greatest single day's crash in the Stock Market the following Monday, whereas when the Germans and EU countries injected Euros into their banks the Stock Markets, including the U.S. Stock Markets temporally surged. Neither is it accidental that India has just sent a spaceship to the moon, or China shooting a missile to down a dead satellite, connected with India and China having the most robust economic growth in the world, producing real wealth.
Both the Keynesian team of Volker's economic planners in the Democratic Party, represented by the Presidential campaign of Barak Obama, and the Monetarist team of Greenspan in the Republican Party, represented by the Bush administration in government and the McCain Presidential campaign to retain that government are scientifically useless and theoretically bankrupt with respect both to understanding the collapse of the American financial system, and more so concerning solving it.
American Paper currency, checks and plastic credit cards - the Monetarists concepts of "money" qua "M1", "M2", and "M3", had validity as U.S. currency and a power in the international markets when the U.S. had most of the world's gold at Fort Knox, and the most powerful productive forces in the world, following World War II. Marx, following the advances in scientific economic theory by the classical political economists, was right, where he wrote:
The first phase of circulation is, as it were, a theoretical phase preparatory to real circulation. Commodities, which exist as use-values, must first of all assume a form in which they appear to one another nominally as exchange-values, as definite quantities of materialised universal labour-time. The first necessary move in this process is, as we have seen, that the commodities set apart a specific commodity, say, gold, which becomes the direct reification of universal labour-time or the universal equivalent. Let us return for a moment to the form in which gold is converted into money by commodities.
1 ton of iron =2 ounces of gold
1 quarter of wheat =1 ounce of gold
1 hundredweight of Mocha coffee =1/4 ounce of gold
1 hundredweight of potash =1/2 ounce of gold
1 ton of Brazil-timber =1 1/2 ounces of gold
Y commodities =X ounces of gold
In this series of equations iron, wheat, coffee, potash, etc., appear to one another as materialisation of uniform labour, that is labour materialised in gold, in which all distinctive features of the concrete labour represented in the different use-values are entirely obliterated. They are as values identical, i.e., materialisations of the same labour or the same materialisation of labour -- gold. Since they are uniform materialisations of the same labour, they differ only in one way, quantitatively: in other words they represent different magnitudes of value, because their use-values contain unequal amounts of labour-time. These individual commodities can be compared with one another as embodiments of universal labour-time, since they have been compared with universal labour-time in the shape of the excluded commodity, i.e., gold. The same dynamic relation, as a result of which commodities become exchange-values for one another, causes the labour-time contained in gold to represent universal labour-time, a given amount of which is expressed in different quantities of iron, wheat, coffee, etc., in short in the use-values of all commodities, or it may be displayed directly in the infinite series of commodity equivalents. Since the exchange-value of all commodities is expressed in gold, the exchange-value of gold is directly expressed in all commodities. Because the commodities themselves assume the form of exchange-value for one another, they turn gold into the universal equivalent or into money.
Gold becomes the measure of value because the exchange-value of all commodities is measured in gold, is expressed in the relation of a definite quantity of gold and a definite quantity of commodity containing equal amounts of labour-time. To begin with, gold becomes the universal equivalent, or money, only because it thus functions as the measure of value and as such its own value is measured directly in all commodity equivalents. The exchange-value of all commodities, on the other hand, is now expressed in gold. One has to distinguish a qualitative and a quantitative aspect in this expression. The exchange-value of the commodity exists as the embodiment of equal uniform labour-time, the value of the commodity is thus fully expressed, for to the extent that commodities are equated with gold they are equated with one another. Their golden equivalent reflects the universal character of the labour-time contained in them on the one hand, and its quantity on the other hand. The exchange-value of commodities thus expressed in the form of universal equivalence and simultaneously as the degree of this equivalence in terms of a specific commodity, that is a single equation in which commodities are compared with a specific commodity, constitutes price. Price is the converted form in which the exchange-value of commodities appears within the circulation process.
Thus as a result of the same process through which the values of commodities are expressed in gold prices, gold is transformed into the measure of value and thence into money. ...Gold must be in principle a variable value, if it is to serve as a measure of value, because only as reification of labour-time can it become the equivalent of other commodities, but as a result of changes in the productivity of concrete labour, the same amount of labour-time is embodied in unequal volumes of the same type of use-values. The valuation of all commodities in terms of gold -- like the expression of the exchange-value of any commodity in terms of the use-value of another commodity -- merely presupposes that at a given moment gold represents a definite quantity of labour-time. The law of exchange-value set forth earlier applies to changes occurring in the value of gold.
The American capitalist economy not only used paper currency, paper with the "value" of the figures written on it, a Federal Reserve Note, based on trust of the government to back it by the gold at Fort Knox, but also check books, credit cards, debit and credit accounting, but the banking system of circulating these accounts became multiplied fictitious money. Once the U.S. currency was forced to go off the Gold Standard, and then the wealth of the productive capital was transferred elsewhere, the only real wealth produced was in the form of wages that were invested in purchasing of houses - products of human labor power. This is why the American banks were drawn into the mortage businesses. The houses had real value, the currency did not.
"Beginning around 1991-92, with cheap credit now flowing from the Federal Reserve System, home prices soared. The money from new mortgages and home equity loans became a virtual "cash cow" for families strapped for cash.The federal government had already been taking steps during the 1990s to ease mortgage credit so that more families could purchase homes.
But after 2001, many more loans were based on fraudulent mortgage applications, where brokers exaggerated borrower incomes. ABC News later reported that during this period risk analysts at Washington Mutual, one of the nation's largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.
On Wall Street, banks that wrote mortgages began to offload them by packaging them into mortgage-backed securities that were sold around the world as bonds to banks and investors. Risk analysts at the leading credit-rating agencies, such as Standard and Poor's, Moody's, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated. Also, mortgage companies, with Alan Greenspan's endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at higher rates in future years. Mortgage brokers fed the growing bubble by telling people they should buy now, because housing prices would keep going up and they could resell at a profit before their ARMs escalated.
"As a result of the bubble, large amounts of money began to flow into the economy, not only from mortgages and home equity loans, but also from capital gains on the resale of inflating property. Meanwhile, in the world of investment securities, the Securities and Exchange Commission reduced the amount of their own capital investors were required to bring to the table, resulting in a large increase in bank leveraging of speculative trading. This fed additional bubbles in the equity, hedge fund, derivatives, and commodities markets. The SEC also eliminated most of its Office of Risk Management through budget cuts.
"George W. Bush was reelected in 2004 at the height of the bubbles. By 2005, the housing bubble alone was accounting for half of all U.S. growth and yielding substantial tax revenues to all levels of government. Still, the Bush administration was running huge budget deficits from expenditures on the increasingly-expensive wars in Afghanistan and Iraq.
"The housing bubble began to collapse when the Federal Reserve raised interest rates by 425 basis points from June 2003 to June 2006.
"In January 2006, Ben Bernanke replaced Alan Greenspan as Fed chairman. Greenspan had been chairman for nineteen years during which the largest financial bubbles in world history were created. This sequence of events led some to contend that the Federal Reserve had both deliberately created the housing bubble, then deliberately destroyed it. Hundreds of millions of people around the world, including U.S. homeowners and foreign investors, ultimately were trapped in the Greenspan/Bernanke pincers.
By 2007, the federal government's debt was over $9 trillion and reached $10.3 trillion by October 2008. It was now obvious that a serious economic downturn lay ahead. By 2007, signs of a recession loomed, as homeowners who had signed up for "subprime" and ARM mortgages began to default.
By 2008 the number of home foreclosures would exceed four million. The mortgage-based bonds sold through Wall Street brokerage houses to U.S. and foreign investors, began to prove worthless. They had proliferated around the world as virtual time-bombs in investment portfolios.
By August 2008, foreign investors, such as the Bank of China, were becoming increasingly involved in the crisis. Reuters ran a story that Chinese banks planned to stop investing in U.S. markets, which the Chinese government denied, but the threat remained. If the Chinese and other Asian exporting and petroleum-rich nations pull out, the days of "dollar hegemony," where the dollar constitutes the world's reserve currency, providing almost unlimited funding for the U.S. commercial and military empire, will be over.
Given the internationalization of American finance capital investors, and selling bad mortages into the international banking system, that fool "Joe the plumber", used by the Republicans and FOX NEWS to object to his money being "spread" to "non tax paying Americans", he is so ignorant that he doesn't know every time he pays on his mortage, and for that matter pays sales taxes, that he is "spreading his wealth" to foreign as well as domestic bankers.
Or, maybe he's not a fool. Maybe he is now being paid. True enough, he exibits extreme ignorance on associating Marxian communism and socialist theory with capitalist Keynesian economic theory. But, before he hadn't mentioned Marx, or claimed that his stupidity was a quote from Marx. It is notable that he goes on television and says the same thing the Republican operatives and television propagandists are saying - knowledgeably and deliberately misleading American workers to think of Marxian socialism in such stupid formulations. Maybe he's paid. The Republicans at any rate had Joe W. on television claiming that Obama's Keynesian capitalist plan of "spread the wealth" was a direct quotation from Karl Marx, saying it was "a fact", although he was not asked from which of Marx works this "fact" was taken. Because most Americans never read any of Marx's works, they didn't know that Joe the plumber was once again Joe the liar - as was Sarah Palin when she claimed that "socialism" is a system of government domination where everyone was deprived of personal property.
Marx and Engels wrote in the Communist Manifesto itself:
The distinguishing feature of Communism is not the abolition of property generally, but the abolition of bourgeois property. But modern bourgeois private property is the final and most complete expression of the system of producing and appropriating products, that is based on class antagonisms, on the exploitation of the many by the few.
In this sense, the theory of the Communists may be summed up in the single sentence: Abolition of private property.
We Communists have been reproached with the desire of abolishing the right of personally acquiring property as the fruit of a man's own labour, which property is alleged to be the groundwork of all personal freedom, activity and independence.
Hard-won, self-acquired, self-earned property! Do you mean the property of petty artisan and of the small peasant, a form of property that preceded the bourgeois form? There is no need to abolish that; the development of industry has to a great extent already destroyed it, and is still destroying it daily.
Or do you mean the modern bourgeois private property?
But does wage-labour create any property for the labourer? Not a bit. It creates capital, i.e., that kind of property which exploits wage-labour, and which cannot increase except upon condition of begetting a new supply of wage-labour for fresh exploitation. Property, in its present form, is based on the antagonism of capital and wage labour. Let us examine both sides of this antagonism.
To be a capitalist, is to have not only a purely personal, but a social status in production. Capital is a collective product, and only by the united action of many members, nay, in the last resort, only by the united action of all members of society, can it be set in motion.
Capital is therefore not only personal; it is a social power.
When, therefore, capital is converted into common property, into the property of all members of society, personal property is not thereby transformed into social property. It is only the social character of the property that is changed. It loses its class character.
Let us now take wage-labour.
The average price of wage-labour is the minimum wage, i.e., that quantum of the means of subsistence which is absolutely requisite to keep the labourer in bare existence as a labourer. What, therefore, the wage-labourer appropriates by means of his labour, merely suffices to prolong and reproduce a bare existence. We by no means intend to abolish this personal appropriation of the products of labour, an appropriation that is made for the maintenance and reproduction of human life, and that leaves no surplus wherewith to command the labour of others. All that we want to do away with is the miserable character of this appropriation, under which the labourer lives merely to increase capital, and is allowed to live only in so far as the interest of the ruling class requires it.
In bourgeois society, living labour is but a means to increase accumulated labour. In Communist society, accumulated labour is but a means to widen, to enrich, to promote the existence of the labourer.
In bourgeois society, therefore, the past dominates the present; in Communist society, the present dominates the past. In bourgeois society capital is independent and has individuality, while the living person is dependent and has no individuality.
And the abolition of this state of things is called by the bourgeois, abolition of individuality and freedom! And rightly so. The abolition of bourgeois individuality, bourgeois independence, and bourgeois freedom is undoubtedly aimed at.
By freedom is meant, under the present bourgeois conditions of production, free trade, free selling and buying.
But if selling and buying disappears, free selling and buying disappears also. This talk about free selling and buying, and all the other "brave words" of our bourgeois about freedom in general, have a meaning, if any, only in contrast with restricted selling and buying, with the fettered traders of the Middle Ages, but have no meaning when opposed to the Communistic abolition of buying and selling, of the bourgeois conditions of production, and of the bourgeoisie itself.
You are horrified at our intending to do away with private property. But in your existing society, private property is already done away with for nine-tenths of the population; its existence for the few is solely due to its non-existence in the hands of those nine-tenths. You reproach us, therefore, with intending to do away with a form of property, the necessary condition for whose existence is the non-existence of any property for the immense majority of society.
In one word, you reproach us with intending to do away with your property. Precisely so; that is just what we intend.
From the moment when labour can no longer be converted into capital, money, or rent, into a social power capable of being monopolised, i.e., from the moment when individual property can no longer be transformed into bourgeois property, into capital, from that moment, you say, individuality vanishes.
You must, therefore, confess that by "individual" you mean no other person than the bourgeois, than the middle-class owner of property. This person must, indeed, be swept out of the way, and made impossible.
Communism deprives no man of the power to appropriate the products of society; all that it does is to deprive him of the power to subjugate the labour of others by means of such appropriations.
It has been objected that upon the abolition of private property, all work will cease, and universal laziness will overtake us.
According to this, bourgeois society ought long ago to have gone to the dogs through sheer idleness; for those of its members who work, acquire nothing, and those who acquire anything do not work. The whole of this objection is but another expression of the tautology: that there can no longer be any wage-labour when there is no longer any capital.
All objections urged against the Communistic mode of producing and appropriating material products, have, in the same way, been urged against the Communistic mode of producing and appropriating intellectual products. Just as, to the bourgeois, the disappearance of class property is the disappearance of production itself, so the disappearance of class culture is to him identical with the disappearance of all culture.
That culture, the loss of which he laments, is, for the enormous majority, a mere training to act as a machine.
But don't wrangle with us so long as you apply, to our intended abolition of bourgeois property, the standard of your bourgeois notions of freedom, culture, law, &c. Your very ideas are but the outgrowth of the conditions of your bourgeois production and bourgeois property, just as your jurisprudence is but the will of your class made into a law for all, a will whose essential character and direction are determined by the economical conditions of existence of your class.
The selfish misconception that induces you to transform into eternal laws of nature and of reason, the social forms springing from your present mode of production and form of property – historical relations that rise and disappear in the progress of production – this misconception you share with every ruling class that has preceded you. What you see clearly in the case of ancient property, what you admit in the case of feudal property, you are of course forbidden to admit in the case of your own bourgeois form of property.
The Communist revolution is the most radical rupture with traditional property relations; no wonder that its development involved the most radical rupture with traditional ideas.
But let us have done with the bourgeois objections to Communism.
We have seen above, that the first step in the revolution by the working class is to raise the proletariat to the position of ruling class to win the battle of democracy.
The proletariat will use its political supremacy to wrest, by degree, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the State, i.e., of the proletariat organised as the ruling class; and to increase the total productive forces as rapidly as possible.
Of course, in the beginning, this cannot be effected except by means of despotic inroads on the rights of property, and on the conditions of bourgeois production; by means of measures, therefore, which appear economically insufficient and untenable, but which, in the course of the movement, outstrip themselves, necessitate further inroads upon the old social order, and are unavoidable as a means of entirely revolutionising the mode of production.
These measures will, of course, be different in different countries.
Nevertheless, in most advanced countries, the following will be pretty generally applicable.
1. Abolition of property in land and application of all rents of land to public purposes.
2. A heavy progressive or graduated income tax.
3. Abolition of all rights of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.
6. Centralisation of the means of communication and transport in the hands of the State.
7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal liability of all to work. Establishment of industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.
10. Free education for all children in public schools. Abolition of children's factory labour in its present form. Combination of education with industrial production, &c, &c.
When, in the course of development, class distinctions have disappeared, and all production has been concentrated in the hands of a vast association of the whole nation, the public power will lose its political character. Political power, properly so called, is merely the organised power of one class for oppressing another. If the proletariat during its contest with the bourgeoisie is compelled, by the force of circumstances, to organise itself as a class, if, by means of a revolution, it makes itself the ruling class, and, as such, sweeps away by force the old conditions of production, then it will, along with these conditions, have swept away the conditions for the existence of class antagonisms and of classes generally, and will thereby have abolished its own supremacy as a class.
In place of the old bourgeois society, with its classes and class antagonisms, we shall have an association, in which the free development of each is the condition for the free development of all.
Accelerated Growth in the War-stricken Period, 1910-1950
The most notable feature of long term Swedish growth is the acceleration in growth rates during the period 1910-1950, which in Europe at large was full of problems and catastrophes.6 Thus, Swedish per capita production grew at 2.2 percent annually while growth in the rest of Scandinavia was somewhat below 2 percent and in the rest of Europe hovered at 1 percent. The Swedish acceleration was based mainly on three pillars.
First, the structure created at the end of the nineteenth century was very viable, with considerable long term growth potential. It consisted of new industries and new infrastructures that involved industrialists and financial capitalists, as well as public sector support. It also involved industries meeting a relatively strong demand in war times, as well as in the interwar period, both domestically and abroad.
Second, the First World War meant an immense financial bonus to the Swedish market. A huge export surplus at inflated prices during the war led to the domestication of the Swedish national debt. This in turn further capitalized the Swedish financial market, lowering interest rates and ameliorating sequential innovative activity in industry. A domestic money market arose that provided the State with new instruments for economic policy that were to become important for the implementation of the new social democratic "Keynesian" policies of the 1930s.
Third, demographic development favored the Swedish economy in this period. The share of the economically active age group 15-64 grew substantially. This was due partly to the fact that prior emigration had sized down cohorts that now would have become old age pensioners. Comparatively low mortality of young people during the 1910s, as well as an end to mass emigration further enhanced the share of the active population. Both the labor market and domestic demand was stimulated in particular during the 1930s when the household forming age group of 25-30 years increased.
The augmented labor supply would have increased unemployment had it not been combined with the richer supply of capital and innovative industrial development that met elastic demand both domestically and in Europe.
Thus, a richer supply of both capital and labor stimulated the domestic market in a period when international market integration deteriorated. Above all it stimulated the development of mass production of consumption goods based upon the innovations of the Second Industrial Revolution. Significant new enterprises that emanated from the interwar period were very much related to the new logic of the industrial society, such as Volvo, SAAB, Electrolux, Tetra Pak and IKEA.
The Golden Age of Growth, 1950-1975
The Swedish economy was clearly part of the European Golden Age of growth, although Swedish acceleration from the 1950s was less pronounced than in the rest of Western Europe, which to a much larger extent had been plagued by wars and crises.7 The Swedish post-war period was characterized primarily by two phenomena – the full fruition of development blocks based upon the great innovations of the late nineteenth century (the electrical motor and the combustion engine) and the cementation of the "Swedish Model" for the welfare state. These two phenomena were highly complementary.
The Swedish Model had basically two components. One was a greater public responsibility for social security and for the creation and preservation of human capital. This led to a rapid increase in the supply of public services in the realms of education, health and children's day care as well as to increases in social security programs and in public savings for transfers to pensioners program. The consequence was high taxation. The other component was a regulation of labor and capital markets. This was the most ingenious part of the model, constructed to sustain growth in the industrial society and to increase equality in combination with the social security program and taxation.
The labor market program was the result of negotiations between trade unions and the employers' organization. It was labeled "solidaristic wage policy" with two elements. One was to achieve equal wages for equal work, regardless of individual companies' ability to pay. The other element was to raise the wage level in low paid areas and thus to compress the wage distribution.
The aim of the program was actually to increase the speed in the structural rationalization of industries and to eliminate less productive companies and branches. Labor should be transferred to the most productive export-oriented sectors. At the same time income should be distributed more equally. A drawback of the solidaristic wage policy from an egalitarian point of view was that profits soared in the productive sectors since wage increases were held back. However, capital market regulations hindered the ability of high profits to be converted into very high incomes for shareholders.
Profits were taxed very low if they were converted into further investments within the company (the timing in the use of the funds was controlled by the State in its stabilization policy) but taxed heavily if distributed to share holders. The result was that investments within existing profitable companies were supported and actually subsidized while the mobility of capital dwindled and the activity at the stock market fell.
As long as the export sectors grew, the program worked well.8 Companies founded in the late nineteenth century and in the interwar period developed into successful multinationals in engineering with machinery, auto industries and shipbuilding, as well as in resource-based industries of steel and paper. The expansion of the export sector was the main force behind the high growth rates and the productivity increases but the sector was strongly supported by public investments or publicly subsidized investments in infrastructure and residential construction.
Hence, during the Golden Age of growth the development blocks around electrification and motorization matured in a broad modernization of the society, where mass consumption and mass production was supported by social programs, by investment programs and by labor market policy.
Crisis and Restructuring from the 1970s
In the 1970s and early 1980s a number of industries – such as steel works, pulp and paper, shipbuilding, and mechanical engineering – ran into crisis. New global competition, changing consumer behavior and profound innovative renewal, especially in microelectronics, made some of the industrial pillars of the Swedish Model crumble. At the same time the disadvantages of the old model became more apparent. It put obstacles to flexibility and to entrepreneurial initiatives and it reduced individual incentives for mobility. Thus, while the Swedish Model did foster rationalization of existing industries well adapted to the post-war period, it did not support more profound transformation of the economy.
One should not exaggerate the obstacles to transformation, though. The Swedish economy was still very open in the market for goods and many services, and the pressure to transform increased rapidly. During the 1980s a far-reaching structural change within industry as well as in economic policy took place, engaging both private and public actors. Shipbuilding was almost completely discontinued, pulp industries were integrated into modernized paper works, the steel industry was concentrated and specialized, and the mechanical engineering was digitalized. New and more knowledge-intensive growth industries appeared in the 1980s, such as IT-based telecommunication, pharmaceutical industries, and biotechnology, as well as new service industries.
During the 1980s some of the constituent components of the Swedish model were weakened or eliminated. Centralized negotiations and solidaristic wage policy disappeared. Regulations in the capital market were dismantled under the pressure of increasing international capital flows simultaneously with a forceful revival of the stock market. The expansion of public sector services came to an end and the taxation system was reformed with a reduction of marginal tax rates. Thus, Swedish economic policy and welfare system became more adapted to the main European level that facilitated the Swedish application of membership and final entrance into the European Union in 1995.
It is also clear that the period from the 1970s to the early twenty-first century comprise two growth trends, before and after 1990 respectively. During the 1970s and 1980s, growth in Sweden was very slow and marked by the great structural problems that the Swedish economy had to cope with. The slow growth prior to 1990 does not signify stagnation in a real sense, but rather the transformation of industrial structures and the reformulation of economic policy, which did not immediately result in a speed up of growth but rather in imbalances and bottle necks that took years to eliminate. From the 1990s up to 2005 Swedish growth accelerated quite forcefully in comparison with most Western economies.9 Thus, the 1980s may be considered as a Swedish case of "the productivity paradox," with innovative renewal but with a delayed acceleration of productivity and growth from the 1990s – although a delayed productivity effect of more profound transformation and radical innovative behavior is not paradoxical.
Annual Growth Rates per Capita, 1971-2005
Period------Sweden--Rest of Nordic Countries--Rest of Western Europe--United States--World Economy
Sources: See Table 1. The recent acceleration in growth may also indicate that some of the basic traits from early industrialization still pertain to the Swedish economy – an international attitude in a small open economy fosters transformation and adaptation of human skills to new circumstances as a major force behind long term growth.
I recently talked with Gail Bateson, Organizer for the San Francisco area East Bay Chapter of the Labor Party, about the year her family spent in Sweden between 1997 and 1998. I thought her experience with a part of the Swedish social wage system should be shared.
— Tony Mazzocchi
BUILDING OUR PARTY
A Column by Tony Mazzocchi,
LP National Organizer
About three weeks after my family arrived in Sweden, we began to realize what it really meant to live in a country with strong social programs. Postcards arrived, addressed to our children, ages 4 and 7, scheduling their first free dental appointments. Apparently this was triggered when we registered and were assigned our "person numbers," Sweden's rough equivalent of Social Security numbers.
I was more concerned about finding a pre-school for my daughter. We found one next to the university hospital where my husband (a physician) was doing research on job-related ergonomic injuries like carpal tunnel syndrome. In Sweden, pre-schools are run by the local government and charge a sliding scale. With my husband's salary, we were at the very top: We would have to pay $150 per month — exactly one-quarter of our cost back in Berkeley.
But then the "barnbidrag" (child allowance) check arrived. Sweden pays every family about $100 per month per child regardless of income. So it turned out my daughter's pre-school was only costing us $50 a month. And considering all the free hot lunches and snacks she received (and bag lunches I was spared from making), it cost even less.
The child allowance ends at age 16 when the child finishes mandatory schooling. Most children go on to what we would call high school, and then to either the university or specialized trade schools. All are free. The child allowance is then replaced with a student stipend. Full-time students get a stipend ("studiemedel") of about $260 per month. The stipend, supplemented by low-interest loans, covers the costs of books and (already subsidized) housing.
My son, meanwhile, was attending the local public school and taking a special Swedish language immersion class for immigrants. While class size is set at a maximum of eight, his had only four. The other students were from Iraq, Iran, and Greece.
My own four-hour-a-day Swedish class (also free, naturally) included young people from Spain and Australia who were learning the language so they could take advantage of the tuition-free university. Our neighbor, Anna, planned to enter the university soon. She was moving into her own apartment, which her parents had bought for her. We wondered how her parents could afford this. It turns out they had saved the monthly child allowance since she was born.
We were all very healthy during our year in Sweden. Only my husband needed medical treatment, for a minor infection. The Swedish health care system is no longer completely free, and the co-payments have been increasing.
In 1998 the co-payment was about $12 to see a family practice doctor and about $24 to see a specialist. Chief among people's complaints was that adults no longer received free dental care, only children.
When you get sick, they really take care of you. I met an American woman with three very young children. She was married to a Norwegian pilot. Her baby had a heart defect and had been through several surgeries. After each surgery he usually spent several weeks recuperating in the hospital. She told me that she had not had to pay a penny for his operations.
She and her other children were also given a free apartment in a hotel adjacent to the hospital to use during the baby's hospital stays. People are reimbursed for travel to and from the hospital, even if it involves airfare from the more remote areas of Sweden.
If your child is sick, you are expected to stay off work and collect sick pay, which covers 80 percent of your salary. Even the unemployed immigrants in my Swedish class received sick pay when staying home with their sick child.
We met several researchers who had lived in the U.S. and loved it. The weather, cheaper consumer goods, and the general friendliness of Americans were high on their list. They had considered moving here. But when they calculated the salary they would need to cover saving for college, retirement, and other costs, they realized they couldn't afford it. (A retired physician we met was drawing 100 percent of his former salary; we heard that 80 percent was the norm.)
This all sounds great, you're thinking, but what about those high taxes they're paying?
By the spring of 1998, the campaigns for the general elections were starting up. The more conservative Moderate Party was once again hoping to unseat the union-backed Social Democratic Party. But both parties recognized that they could not advocate tax cuts and hope to win the election. The electorate (of which 85 percent regularly vote) knew that cutting taxes would jeopardize social programs.
At the same time, across the sound in Denmark, workers called a general strike, hoping to win a sixth week of annual vacation. And I realized, as I packed up to return home, that we have such a long way to go.
Malcolm X on Sweden &c.
Theres one thing that Martin Luther King mentioned at the Armory the other night, which I thought was most significant. I hope he really understood what he was saying. He mentioned that while he was in some of those Scandinavian countries he saw no poverty. There was no unemployment, no poverty. Everyone was getting education, everyone had decent housing, decent whatever they needed to exist. But why did he mention those countries on his list as different?
This is the richest country on earth and theres poverty, theres bad housing, theres slums, theres inferior education. And this is the richest country on earth. Now, you know, if those countries that are poor can come up with a solution to their problems so that theres no unemployment, then instead of you running downtown picketing city hall, you should stop and find out what they do over there to solve their problems. This is why the man doesnt want you and me to look beyond Harlem or beyond the shores of America. As long as you dont know what's happening on the outside, youll be all messed up dealing with this man on the inside. I mean what they use to solve the problem is not capitalism. What they are using to solve their problem in Africa and Asia is not capitalism. So what you and I should do is find out what they are using to get rid of poverty and all the other negative characteristics of a rundown society.
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