← Economic Update with Richard D. Wolff
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Welcome, friends, to Economic Update, a weekly program devoted to the economic dimensions of our lives. Jobs, debts, incomes, our own, our children's. I'm your host, Richard Wolff. I've been a professor of economics all my adult life, and that's how I come to bring these economic updates to you each week. All right, let's turn to the economic updates for today. I've chosen a couple of issues that have repeatedly come to my attention from your comments, your questions, and even from those of you that meet me on the street and have a few words about the program, which I appreciate. So the first of these has to do with governments taking over enterprises, taking them over from private enterprises, or starting them up all by themselves as government enterprises instead of private enterprises. This has been in the news recently because in a dramatic gesture, Argentina took back the oil company that had actually been started by the Argentine government, had been sold by the Argentinians to a Spanish oil company. And now the Argentinians have decided that the way that the Spanish company managed its subsidiary in Argentina was not acceptable. And so the government is coming back. I'm not interested in the details, the haggling between the Argentinian government and the Spanish oil company over the price that is going to be paid for this takeover. What I'm interested in is the connection between governments taking over enterprises and the question of capitalism versus socialism, since a great deal of really strange and often silly things are said about this. So let's begin. When governments take over enterprises, buy them, or require the government to take over an enterprise, everyone should understand that there's no country on earth that doesn't give the government of that country the right to do that. Here in the United States, for example, we have laws. They usually go by the name eminent domain. These laws give government the right to take over private enterprises and private property. They are supposed to figure out a reasonable basis for what they cost and pay the private owners for that. But. But the private owners are not allowed to say no. The government is given that right as representing the interests of the community. That has been true throughout the history of the United States. There are indeed all the time examples where cities, states, and the federal government have done that in our history as a nation. So there isn't anything extraordinary at all about, about this as a principle. Why, one might then ask, is all this fuss made? And the answer is that private capitalists, private owners and operators of businesses are worried and always have been worried about the idea that a government elected and responsible to the majority of people might choose to take over an enterprise and run it not for the profit of the owners, not for the high salaries of the top executives, but rather for the general benefit of the population. This is a scary prospect to private enterprises. So they have always been nervous and upset by the rights that all governments retain to do exactly what I just said. Let me give you some examples drawn especially from the United States. We have a long history of the government operating enterprises for a variety of reasons. Let me give you the example of the Post Office. The original idea for the post office was everyone needs it. Every business needs to be able to send out bills, to receive payments, to work out the details of contracts, and so on by using the post. And remember, the postal system was set up long before we had the Internet, email, and so on. Everyone needed the post office. And so there was the fear that if a private company or companies were to run the post office, they would take advantage of the desperate needs we all have to charge unbearable prices and to make themselves a bundle of profits. So it was decided in the United States, as in most other countries, that the postal service would be an enterprise, would hire workers, but would not be a private enterprise, would be run and operated by the government. Not only was that not opposed by private enterprises, it was wanted by them. It was a way to assure that postal services that every business needed would be provided at affordable prices. The same applied to the United States government when it ran the Amtrak train system or all kinds of other transportation systems like superhighways, thruways, and so on. These are things that the capitalists of the country need. They do not want to be charged very high prices for them. And a solution is to have the government run them at relatively low prices. Wow. This might help us explain something. Private capitalists, who arranged for many of the government enterprises to be run and did so precisely in order that they charge low prices, have had a good time turning around and pointing to these companies and saying, gee, they're not profitable. And and to suggest that the reason they're not profitable is that the government doesn't run businesses, well, that's unfair and a bit of a hustle. The reason government enterprises often don't turn a profit is that's what they were intended to do. They don't earn a profit because they're not allowed to charge as much money as they might otherwise get away with. That's what private capitalists want them to do. The last thing private enterprises in America want is a postal system that actually is profitable, because if it did that, the postal system would have to Charge all those businesses a lot more for the postage than they now pay. And there are still other examples where you can see a slightly different mechanism at work. After World War II, the American Working class had progressed enough to demand the opportunity for their kids to get higher education, to go to colleges and universities in huge numbers that had never done that before. The problem in the United States was that we had a system of private colleges and universities geared to a tiny proportion of our population. The rich, the elite who sent their kids to school before World War II and were used to going to college. In order to accommodate the mass of the Americans thinking about sending their kids to school, we had to consider expanding the sheer number of colleges and universities hugely and in a very short amount of time. The private schools of the United States, the private elite colleges, didn't want to do that. They wanted to remain small, private and elite. They didn't have the money to do it either. So that was decided to be a government enterprise. That's why out of the 15 million Americans who go to colleges and universities today, 12 million of them go to public colleges and universities. Higher education is overwhelmingly a public government run enterprise in the United States. And very few people object to it. It has been crucial in, in keeping the United States a competitive economy. It has done more than the private schools ever did in training the bulk of young people with high skills in our economy. And I don't think a serious person exists who would question the enormous benefits to the United States from this public enterprise. Okay, Amtrak, post office, higher education, colleges and universities. Well, let me give you another reason why the government has taken over enterprises in the United States. It's when they have really screwed up big time and they threaten the entire economy. That's the concept of too big to fail. And the most profound example in recent history is the largest insurance company in the world. Something called AIG stands for the American International Group, an insurance company based in New York City that, as I say, was the largest insurance company in the world. The United States government took it over back in 2008 and remains the owner and operator of that enormous enterprise. Why? The insurance company AIG insured huge amounts of financial instruments by means of something called credit default swaps. Those financial insurance policies, really what they were, were written by the AIG Company and they were the backing behind all of those fancy securities that went belly up in the great crisis that hit this country in the autumn of 2007. Pension funds across America, governments around the world, countless individuals, all had invested in securities insured by aig. But AIG hadn't managed its business real well and couldn't pay the policies off. That meant that pension funds around the country wouldn't have the money to take care of the old people that depended on them. Governments would be unable to continue to function because their investments had turned sour. So the United States government realized that if they let the AIG corporation collapse because it was a defunct private enterprise that had failed, so many people would be hurt that it was an unacceptable social arrangement. So the government came in, took over the AIG company and guaranteed all the policies that that company had written, but that that company could not honor. Did people object? No. Did Republicans and Democrats support this? Yes. And they still do. That's why the government still owns aig. So there it was a case that other capitalists who had invested in these securities and rich executives who had were very happy to have the government come in because they would have lost their shirts otherwise. These are all examples of government taking over or operating private enterprises from the beginning. Not as an alternative to, or a threat to or an opposition to capitalism. On the contrary, these are examples of governments taking over enterprises or operating enterprises whose purpose is to support, enhance and subsidize private capitalists. That's why to call a government takeover of an enterprise socialism is rather silly. It's not socialism if by socialism you mean what it has mostly meant over the last 150 years, namely an alternative to capitalism, a different way of organizing economy and society than capitalism. When governments take over enterprises, they might have that plan to get rid of capitalism and replace it with socialism, but there's no necessity of it. And all the examples I just gave you are examples of the government taking over enterprises with absolutely no interest in and no movement towards replacing capitalism with socialism. Indeed, that was made clear in Argentina when they decided to take over the Argentinian subsidiary of the Spanish oil company. They were not making a move against capitalism. They were deciding that the behavior of that corporation inside Argentina was having such adverse effects on the Argentinian economy that they would be better off as a society to have that run by the government. That is pretty nearly exactly the decision made by the Bush administration, endorsed then by the Obama administration, to have the government of the United States take over aig, the largest private capitalist insurance company in the world, because the interests of the United States are required doing no less. That does it. For the first part of our show, I want to remind you to follow us on Facebook, Twitter and Instagram. And remember to subscribe to our YouTube channel and visit our website democracyatwork.info There you can see more of what we do and how you can get involved. And if you listen to this show as a podcast, you can download the new Economic Update app where you can find recent episodes and archived shows. As always, thanks to our Patreon community. Your support makes all that we do possible and we enjoy bringing it to you on your mobile device. Please stay tuned. We'll be right back. Let me then turn to the other side of this question. Is it possible for the government to take over enterprises and to have it have something to do with socialism? And the answer is, of course that's possible. It is possible for the government to take over enterprises and to intend that takeover to be part of a transition from capitalism to to socialism in the past. Here's what that's meant and I'll use as an example the Soviet Union. When the Soviet revolution happens in 1917, the new socialist government does what? First, it announces that it's going to take over industrial enterprises. It's important for those of you that are interested in the actual history of the Soviet Union, as opposed to the fantasies usually disclosed about it, to remember that most people in Russia in 1917, when they made their revolution, were peasants, people who lived on the land and who did agriculture as their way of life. The Soviet government in 1917 did not propose to to take over the land. On the contrary, the new government of Lenin, Trotsky, Stalin and the others promised the mass of people and indeed gave the mass of the people private ownership in the land. Private, not state ownership. The state didn't take over the most important part of the economy, agriculture. What the state did take over was industry. It took over industrial corporations, manufacturers, bankers, and so on. Those were made state enterprises. And not only that, but they told the private enterprises that they weren't going to pay for it. So it was not only a takeover, it was what is called expropriation. It's when you take over a property without paying anything. For in Argentina, they are paying for what they did. The only debate there is how much they pay. But in the Soviet Revolution, they weren't going to pay. Well, what did the Soviet Revolution therefore mean? The government took over the enterprises and here's what hired the workers. So the government becomes, in effect, the employer in industry, not in agriculture, but in industry. And the government not only becomes the employer, the government therefore makes the profit. If what the workers produce in industrial enterprises is worth more than the cost of having them produce it. The difference between the revenues and the Cost. The profits of the enterprise become the profits gathered by the government because it owns and operates the enterprises. And so in that situation, the government takeover was part of a transition. But now let's examine a transition to what? To an industrial society in which the industries were owned by the government, the government was the employer, the government gathered into its hands the profits, and the government developed an economic plan. Soviet Union was quite famous for that, developing its five year plans in which the government decided what would be done with the output, who would get it, how much would be produced in the way of consumer goods for the people, and so on. We typically call this kind of idea of socialism government ownership and government planning. And we distinguish it from private capitalism, where a private enterprise owns the operation. And we don't use planning to move outputs and inputs around, we use the market. So capitalism is private ownership and the market. And this kind of Soviet socialism is state ownership and state planning. Once this was established in the Soviet Union, and as fast as it was established, socialists, Marxists and those interested in this kind of a thing began to have pretty bitter debates. Was what the Soviet Union did taking over industrial enterprises, operating them, hiring the workers, planning the flow of inputs and outputs. Was this really socialism or was it not? And there were as many on one side as on the other much of the time. Here was what was at stake. The critics of Soviet socialism argued that having the state take over didn't change the basic lives of people in the way that the socialist movement had always spoken of. Their idea was the A genuine socialism, a genuine passage beyond capitalism, requires more than having state officials replace private individuals on the boards of directors of big companies. It has to do with much more than replacing bureaucrats doing planning, having that instead of markets where we all haggle with one another, company to company, company to individual, and so on. Those kinds of socialist critics of the Soviet Union argued that a major further step was required and criticized the Soviet Union for not taking that step. And here was the basic in order for socialism to really be established, you have to put the mass of people really in charge of this society. The problem with capitalism was, they argued that it was always a minority. The major shareholders in corporations who picked hand picked the boards of directors who made all the decisions to get rid of them. Which for socialists was a good idea in terms of taking away their positions, was not to be replaced by having a few, a handful of state officials or political party officials do that job. Instead, that would just get rid of one minority and substitute another minority. The whole point was to fundamentally change the society so that democratically the mass of people would be in charge of their own economic situation. And that these critics argued the Soviet Union and for that matter the People's Republic of China, Cuba and so on, still had not done, and I still have not done to this day. And so that criticism remains. The answer of the Soviets was we can't do that. History isn't ready for that. The mass of people lack the capacity, lack the discipline, lack the training, whatever, and can't be expected to do that. So that socialism has to be limited to state ownership and planning instead of private ownership and markets. Whether you come down on one side or the other of that question, the bottom line here is that government takeover doesn't necessarily give you a transition to a new and post capitalist society. That is simply a mistake. When hysterical businessmen and women denounce the government for taking something over and use the phrase socialism, they're not understanding what the history of government takeovers has been and what it's meant to for capitalism to call Obamacare socialist, to try to get people motivated to be opposed to something by calling it socialist, when all you can point to is that the government takes a bigger hand, then you have a lot of very difficult explaining to do. Is it socialist that we have public schools? Is it socialist that we have public postal system? Is it socialist that we have, et cetera, et cetera? Does that threaten capitalism or does it in fact subsidize it? Does it strengthen capitalism or does it undermine it? These questions are shunted aside in a kind of sloganeering that can be corrected if you simply take a look at the very varied historical situation governing how, when and why governments take over the enterprises or start enterprises themselves. By the way, if I had more time to go into this, I would also explain that in many other countries, governments are asked by capitalists to take over many more things. For example, public transportation, public utilities like gas and water and so on are common in many European countries, as are all kinds of insurance programs and the particular production of certain kinds of commodities. This is normal in the history of capitalism, has been widely supported by private capitalists who've gotten all kinds of benefits from this situation. Typically, also, the government is called upon to save corporations when they are defunct, to save the whole society when corporations are big and their failure would threaten everybody else, as in the example of aig. So I hope that answers some of the various kinds of questions that have been raised when people have talked to me about the significance, the meaning of the implications of government taking over private enterprise. That is by itself, not socialism. That's not what it's been. The question of socialism is fundamentally different. A government takeover can, but need not lead to anything socialist at all. Thank you very much for being with me today. This is Economic Update. I'm Richard Wolff. I look forward to being with you again next week. Sa. Sam.