Thursday, May 6, 2010

Could Greek Socialism Kill Global Capitalism?

Could Greece kill global capitalism?

Industrial workers were not a very important segment of our global society in 1800. People who toiled for an employer at something other farming had been around from at least the beginning of written history. At certain places and times had been significant portions of a local population. But even in Great Britain in 1800 most people had a close connection to agricultural production. Most industrial production had to do with refining agricultural products like milling grain or spinning cotton and wool.

By 1850 Britain was an industrial power and men like Mikhail Bakunin and Carl Marx had worked out ideologies that gave what they called the industrial proletariat a center-stage role. The villains were industrial capitalists, in their view. A series of political revolutions began that, at least ostensibly, tried to put the working class in control of society. There was a limited degree of success, with the Russian communist revolution and Chinese communist revolutions being the best known, and milder forms of socialism (leaving parts of capitalism intact) being much more widely adopted.

A funny thing happened on the way to utopia. The communists tried to out-industrialize the capitalists, and in some ways succeeded. In a sense the state bureaucrats simply became substitutes for the capitalist class.

The biggest threat to capitalism, it seemed in the 20th century, was capitalism itself. The Great Depression caused even our capitalist heartland, the United States of America, to adopt some socialist measures like social security, unemployment insurance, and a progressive income tax structure.

In the 1980s and 1990s the trend was to undo socialism, with Presidents Ronald Reagan and Bill Clinton presiding over the process in the U.S. The economic disasters of the first decade of the 21st century followed.

Capitalism showed its resilience as an economic, political, and social structure in the 20th century. But that does not mean it is indestructible. I don't think it is about to self-destruct, but it is instructive to look at how close it is to self-destruction today.

The economy of Greece is more socialist than capitalist, but not particularly more so than the typical European nation. Usuallytempering capitalism with socialism has made for the most economically vibrant societies (which of course, are also the most ecologically destructive societies). But Greece, in its global context, shows how capitalism and socialism can still be mutually destructive at times. Perhaps more destructive than ever before.

The Greek economy borrowed money from foreign economies. Just like if you or I borrow money, it is not necessarily a bad thing. Whether borrowing is good or bad depends on what you borrow the money for, how much interest you pay on the loan, and your ability to repay the interest and principle. If you borrow from Tony Soprano at 20% per week and put the money on a horse, or up your nose, most people would agree that is bad borrowing. On the other hand, if you get lucky and your horse wins the race, it makes the loan appear to be better in retrospect than it would be considered in general. A good loan example might be borrowing money at 4% a year, resulting in some obvious benefit, like lowering your cost of living if your mortgage payments are less than your old rental payments, or being able to hire more workers and make more profit if the loan is used to buy crucial machinery for your business.

The Greek loans were somewhere in between, but leaning towards the Soprano model. On a national scale the loans allowed civil servants (who make up over a quarter of the work force) to retire early with cushy pensions. That sounds lovely, but the problem is the world is becoming more competitive, not less. Greeks in general, and civil servants in particular, need to work more years, and longer hours, to justify their consumption levels. Those who loaned to Greece were the greater fools.

In politics politicians want to please people. Capitalist and socialist, Republican and Democrat and independent alike. If you don't please enough people, you don't get re-elected, and if you don't allow elections, you may get overthrown. Pleasing people means keeping taxes as low as possible relative to benefits. So almost every government borrows money. If economies grow, the tax base grows, and the loans can be paid off with relatively little pain.

But economies can grow in different ways. If they grow by everyone consuming more without producing more goods or services, they are going to get in trouble, no matter what the socialist to capitalist mix.

Capitalists of the banker sort want to loan money. It is nice clean work. They want to believe that loans will be paid back. It makes everyone happy.

Greece and the United States have much in common. The main difference is not the socialism to capitalism mix, though that should not be discounted. The main difference is that America borrows money mainly for military expenses.

Would you lend money to Tony Soprano? How would you get it back if he decided not to pay? All you could do learn from your folly, and resolve to not loan to him ever again.

Loaning money to the United States, especially to the federal government, is beginning to look suspiciously like loaning money to Tony Soprano. I think the Chinese and Japanese are fools to do it. So are American investors.

I don't think the Greek crisis in itself will kill global capitalism, but it is a warning. Socialism, originally, was supposed to be for all the workers, not just government workers. Capitalism was supposed to be about the wise deployment of capital. But mix the worst of both together, as has happened in the U.S. and in Greece, and you have a truly toxic brew.

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