Reasons for Popular Skepticism

on Politics and Politicians

By Marta Harnecker

translated by Federico Fuentes

for Links International Journal of Socialist Renewal

[This is the seventh in a series of regular articles.]

1. In one of my previous articles, I stated that in order to wage an effective struggle against neoliberalism, it is necessary to unite all those suffering its consequences, and to achieve this objective we must start with the left itself, which in our countries tends to be very dispersed. But, there are many obstacles that impede this task. The first step to overcoming them is to be aware of them and be prepared to face them.

2. One of these obstacles is the growing popular skepticism regarding politics and politicians.

3. This has to do, among other things, with the great constraints that exist today in our democratic systems, which are very different to those that existed prior to the military dictatorships.

4. These low-intensity, controlled, restricted, limited or monitored democratic regimes drastically limit the effective capacity of democratically elected authorities. The most important decisions are made by unelected institutions of a permanent character, and which therefore are not subject to changes produced by electoral results; such is the case with national security councils, central banks, institutions for economic advice, supreme courts, ombudsmen, constitutional tribunals.

5. Groups of professionals, and not politicians, are responsible for making decisions, or at minimum have a decisive influence over the decisions made. The apparent neutrality and depoliticization of these entities conceals the new way in which the dominant class does politics. Their decisions are adopted outside the framework of parties. We are dealing with controlled democracies, where the controllers themselves are not subject to any democratic mechanism.

6. Moreover, instruments for manufacturing consensus -- monopolized by the ruling classes -- have been dramatically improved, conditioning to a great extent the way in which people perceive reality. This explains why it is that the most conservative parties, which defend the interests of a tiny minority of the population, have been able to quantitatively transform themselves into mass parties, and why the social bases that support their candidates, at least in Latin America, are the poorest social sectors of the urban peripheries and countryside.

7. Other elements that explain this growing popular skepticism include, on the one hand, the unscrupulous appropriation by the right wing of the language and discourse of the left: -- words such as reforms, structural changes, concern for poverty, transition -- today form part of its everyday discourse; and, on the other hand, the quite frequent adoption of political practices by some parties on the left that hardly differ from the habitual practices of traditional parties.

8. We must bear in mind that, increasingly, people are rejecting clientalist, non-transparent and corrupt party practices carried out by those who reach out to the people only at election time; that waste energy in internecine fighting between factions and petty ambitions; where decisions are made at the top by party elites without a genuine consultation with the ranks; and where personal leadership outranks the collective. People are increasingly rejecting messages that remain as mere words, and are never translated into action.

9. Ordinary people are fed up with the traditional political system and want renewal, they want positive change, they want new approaches to doing politics, they want clean politics, they want transparency and participation, they want to regain confidence.

10. This distrust of politics and politicians – which also permeates the social left – which is growing daily, is not a serious issue of the right, but it is for the left. The right wing can operate perfectly well without political parties, as it demonstrated during periods of dictatorship, but the left cannot do without a political instrument, be it a party, a political front or some other formula.

11. Another obstacle to the unity of the left ?-- following the defeat of Soviet socialism, and the crisis of the welfare state promoted by European social democracies and Latin American populist-developmentalism -- is that it has had great difficulties in elaborating a rigorous and credible alternative to capitalism -- socialist or whatever you want to call it -- that takes into account the new world reality.

12. Capitalism has revealed its great capacity to re-invent itself and utilize the new technological revolution towards its own ends: fragmenting the working class and limiting its negotiating power, creating panic over unemployment. Meanwhile, on many occasions, the left has remained anchored in the past. There is an excess of diagnosis and an absence of remedy. We tend to navigate without a political compass.

13. Most of the obstacles outlined above come about due to realities imposed on us from outside, but there also exists obstacles that disrupt attempts to unite all of the left which come from within.

14. Moreover, during the last decades, the party left has had many difficulties in working with the social movements and winning over new social forces. While, on the other hand, there has been a tendency in the social left to dismiss parties and magnify their own roles in the struggle against neoliberal globalization, an attitude which hasn’t helped in overcoming the dispersion of the left. Our next article will approach these matters.

Marta Harnecker’s bibliography on the topic:

La izquierda después de Seattle, Siglo XXI España, 2002.

La izquierda en el umbral del Siglo XXI. Haciendo posible lo imposible, Published in: México, Siglo XXI Editores, 1999; España,    Siglo XXI Editores, 1ª ed., 1999, 2ª ed., 2000 y 3ª ed., 2000; Cuba, Editorial de Ciencias Sociales, 2000; Portugal, Campo das Letras Editores, 2000; Brasil, Paz e Terra, 2000; Italia, Sperling and Küpfer Editori, 2001; Canadá (francés), Lantôt Éditeur, 2001; El Salvador, Instituto de Ciencias Políticas y Administrativas Farabundo Martí, 2001.

[Marta Harnecker is originally from Chile where she participated in the revolutionary process of 1970-1973. She has written extensively on the Cuba Revolution, and on the nature of socialist democracy. She now lives in Caracas and is a participant in the Venezuelan revolution.]

Photo: Green Transit via Light Rail

GM's Tragedy:

The System

Strikes Back

By Rick Wolff

Rethinking Marxism

June 15, 2009 - The greatest tragedies among many in the collapse and bankruptcy of General Motors concern what is not happening.  There are those solutions to GM's problems not being considered by Obama's administration.  There are the solutions not being demanded by the United Auto Workers Union (UAW).  There are all the solutions not even being discussed by most left commentators on the disaster.  Finally there are crucial aspects of GM's demise not getting the attention they deserve.

Let's start with an example of the last.  For 50 years, the world market for automobiles has grown spectacularly.  The company best positioned to have ridden that rising tide to success was GM, the global market leader for most of that time.  Instead, GM failed catastrophically.  Those responsible, who planned, adjusted, and competed poorly, have a name.  They are the corporation's Board of Directors: the handful of individuals chosen by and responsible to the handful of major GM shareholders.  That Board and those shareholders proved across decades that they lacked the understanding, vision, and flexibility to succeed.  A rising tide is supposed to lift all boats, but GM's captains managed to sink its boat.

President Obama promises not to interfere in decisions of the next post-bankruptcy GM Board of Directors despite the government being GM's largest shareholder.  He further promises quickly to sell the government's shares to "re-privatize" GM (he promises the same for collapsed banks, insurance companies, and other corporations revived by infusions of taxpayer money).  Obama's plan returns decision-making to the same Boards who just brought us the worst economic crash in 75 years.

GM's bankruptcy cuts employees and the wages and benefits of remaining workers.  That will further damage already reeling Midwestern states dependent on the auto industry.  Were our culture less subservient to capitalist interests and mentalities, the government would have developed -- years ago, but certainly during the last crisis-ridden year -- major plans to maintain employment and the regional economy by converting closed auto plants into, for example, production of ecologically sensitive mass transportation systems.  That would be a growth industry as many regions seek to reduce the ecological damage from private automobile-based transportation systems.  Obama supporters talk about such things but his administration does not do them.

Likewise the government might have developed programs to utilize closed plants, warehouses, and showrooms to help laid-off workers organize and operate their own enterprises.  For a tiny fraction of the billions given to banks, the government could finance such workers using their skills, their largely untapped managerial capabilities, and their knowledge of and commitment to local needs.  This, too, is not happening.

The UAW no doubt accepted the horrific terms of Obama's GM bankruptcy plan because otherwise bankruptcy threatened even worse for workers.  It was "the best deal possible in the circumstances."  However, those circumstances could have been different if the UAW and its allies had fought for them earlier.  Suppose, for example, that the UAW, other unions, and the political left had fought for and won laws obligating the government to finance massive investments in new enterprises (producing new things and organized in new ways) whenever private capitalists laid off workers in large numbers.  Then the UAW would not have had to accept the sort of horrific deal Obama and GM just pushed on them.  UAW workers would have refused because they would have known the government was obligated to provide them with new jobs, enterprises, and new supports if a bankrupt GM fired them.  The government's costs of bailing out GM through bankruptcy would have had to include the expenses of providing the new jobs and supports to fired workers.  The government might then have put heavy pressure on GM for a bailout with many fewer lost jobs.  In any case, if such laws had been won, UAW members laid off in a bankruptcy would not face unemployment nor would their communities face the devastation now underway.

The point is that nothing in the Obama-GM tragedy was necessary or unavoidable.  The political struggles not undertaken and the laws not passed created the circumstances that drove UAW capitulation to the Obama bankruptcy as their least awful option.  Knee-jerk apologists for the status quo are wrong to dismiss talk of what might have been.  What might have been -- but was not won or even fought for -- determines today's mass sufferings as the GM tragedy unfolds.  Without past labor-left alliances struggling for laws such as the example above describes, the way was cleared for GM and Washington to devise a choice for the UAW that made its members losers either way.

GM played by the capitalist system's rules.  First, it always aimed to profit by driving its employees as hard as possible and paying them as little as it could.  Second, GM secured the US market for its cars and trucks by blocking the development of high-quality mass transportation here.  Auto workers fought, through the UAW, and eventually won decent wages and benefits that became goals for all other unions and workers for decades.  US citizens' efforts to get quality mass transportation failed (hence Europe's far superior mass transport systems).

Under capitalism's rules, the decent wages and working conditions won by the UAW provoked GM to strike back by moving production where wages and benefits were lower.  Thus GM's vehicle production inside the US peaked in the late 1970s (over 6 million) and has since fallen steadily (over 2 million in 2008).  GM profited more from the much cheaper labor in China, Brazil, India, and elsewhere.  The big losers have been the hundreds of thousands of laid-off, retired, and the few still employed auto workers, and everyone in Detroit and all the other consequently devastated communities.  This week's GM bankruptcy creates still more losers to "rebuild GM's profitability."

Workers who struggle successfully for decent wages and working conditions always find that the system strikes back.  That's how capitalism works, how capitalists profit.  Republicans and Democrats alike proudly serve that system.  And the lesson for GM and other workers is. . . . . ?

  The Need to Unite

the Party Left and

the Social Left

By Marta Harnecker

translated by Federico Fuentes

for Links International Journal of Socialist Renewal

[This is the sixth in a series of regular articles. ]

1. The rejection by a majority of the people of the globalization model imposed on our continent intensifies each day given its inability to solve the most pressing problems of our people. Neoliberal policies implemented by large transnational financial capital, which is backed by a large military and media power, and whose hegemonic headquarters can be found in the United States, have not only been unable to resolve these problems but, on the contrary, have dramatically increased misery and social exclusion, while concentrating wealth in increasingly fewer hands.

2. Among those who have suffered most as a result of the economic consequences of neoliberalism are the traditional sectors of the urban and rural working classes. But its disastrous effects have also affected many other social sectors, such as the poor and marginalised, impoverished middle-class sectors, the constellation of small and medium-sized businesses, the informal sector, medium and small-scale rural producers, the majority of professionals, the legions of unemployed, workers in cooperatives, pensioners, the police and the subordinate cadres of the army (junior officers). Moreover, we should not only keep in mind those who are affected economically, but also all those who are discriminated and oppressed by the system: women, youth, children, the elderly, indigenous peoples, blacks, certain religious creeds, homosexuals, etc.

3. Neoliberalism impoverishes the great majority of the population of our countries, those impoverished in the socioeconomic sense and also in the subjective sense.

4. Some of these sectors have transformed themselves into powerful movements. Among those are women’s, indigenous and consumer rights movements, and movements that fight for human rights and in defense of the environment.

5. These movements differ in many ways from the classical labor movement. Their platforms have a strong thematic accent and they reach across classes and generations. Their forms of organizing are less hierarchical and rely more on networks than those of the past, while their concrete forms of actions vary quite a lot.

6. New social actors have also appeared. What is surprising, for example, is the capacity to mobilize that has manifested itself among youth, fundamentally organized through electronic means, with the object of rejecting actually existing globalization; resisting the application of neoliberal measures, promotion very powerful mobilizations against war and now against military occupation, and spreading experiences of revolutionary struggle, breaking up the information blockade that had been imposed on left and progressive ideas.

7. This growing rejection is being expressed through diverse and alternative practices of resistance and struggle.

8. The consolidation of left parties, fronts or political processes in opposition to neoliberalism is undeniable in various countries: Venezuela, Brazil, Colombia, Uruguay, El Salvador, Bolivia. In some, such as Brazil, Argentina, Bolivia, Ecuador and Mexico, powerful social movements have arisen, which have transformed themselves into major political actors, becoming important opposition forces that occupy the frontlines of the fight against neoliberal globalization.

9. However, despite the depth of the crisis that this model has provoked, the breadth and variety of affected sectors that embrace the majority of the population, the multiplicity of demands that have emerged from society and which continue to remain unmet -- all of which have produced a highly favorable situation for the creation of a very broad anti-neoliberal social bloc with enormous social force -- the majority of these growing expressions of resistance and struggle are still far from truly representing a real threat to the system.

10. I believe that one of the reasons that helps explain this situation is that parallel to these objective conditions which are favourable for the construction of a broad alternative social bloc against neoliberalism, there are very complicated subjective conditions which have to do with a profound problem: the dispersion of the left.

11. And that is why I believe that for an effective struggle against neoliberalism, it is of strategic importance to articulate the different left sectors, understanding the left to mean all those forces that stand up against the capitalist system and its profit-driven logic, and who fight for an alternative society based on humanism and solidarity, built upon the interests of the working classes.

12. Therefore, the left cannot simply be reduced to the left that belongs to left parties or political organisations; it also includes social actors and movements. Very often these are more dynamic and combative than the former, but do not belong to or reject belonging to any political party or organisation. Among the former are those who prefer to accumulate forces by using institutions to aid transformation, while others opt for revolutionary guerrilla warfare; among the latter, some attempt to create autonomous social movements and different types of networks.

13. To simplify, I have decided to refer to the first group as the political left and the second group as the social left, even though I recognise that this conceptual separation is not always so in practice. In fact, the more developed social movements tend to acquire socio-political dimensions.

14. To sum up, I believe that only by uniting the militant efforts of the most diverse expressions of the left will we be able to fully carry out the task of building the broad anti-neoliberal social bloc that we need. The strategic task therefore is to articulate the party and social left so that, from this starting point, we can unite into a single colossal column, the growing and disperse social opposition.
Marta Harnecker’s bibliography on the topic:

La izquierda después de Seattle, Siglo XXI España, 2002.

[Marta Harnecker is originally from Chile where she participated in the revolutionary process of 1970-1973. She has written extensively on the Cuba Revolution, and on the nature of socialist democracy. She now lives in Caracas and is a participant in the Venezuelan revolution.]

  Minorities

Can Be Right

By Marta Harnecker

translated by Federico Fuentes

for Links International Journal of Socialist Renewal

[This is the fifth in a series of regular articles.]

1. Democratic centralism implies not only the subordination of the minority to the majority, but also the respect of the majority towards the minority.

2. Minorities should not be crushed or marginalized; they should be respected. Nor should the minority be required to completely subordinate itself to the majority. The minority must carry out the tasks proposed by the majority at each concrete political junction, but they should not have to renounce their political, theoretical and ideological convictions. On the contrary, it is the minority’s duty to continue fighting to defend their ideas until the others are convinced or they themselves become convinced of the other’s ideas.

3. Why should the minority continue defending its positions and not submit to the position of the majority? Because the minority may be right; their analysis of reality might be more accurate if that they have been capable of discovering the true motivations of specific social forces. That is why those who hold minority positions at a determined moment should not only have the right, but the duty, to hold their positions and fight to convince the maximum amount of other militants of their positions through internal debate.

4. Moreover, if the majority is convinced that their propositions are correct, then they have nothing to fear in debating ideas. On the contrary, they should encourage it and try to convince the minority group. If the majority fears a confrontation of positions it is probably a sign of political weakness.

5. Is this not the case if we look at some of the left parties and social movements in Latin America? How many splits could have been avoided if the minority view had been respected? Instead, on many occasions, the entire weight of the bureaucratic apparatus has been used to crush them, leaving them with no choice but to split. Sometimes minorities are accused of being divisive for the simple reason that they want their ideas to be respected and be given space to debate them. Could it be that the true splitters are those who provoke the division by leaving the minority with no other option than to split if they hope to continue their struggle against positions they believe to be wrong?

6. The topic of majorities and minorities also has to do with the disjunction or non-correspondence between representatives and the represented. This phenomenon may occur for different reasons, including: the organic incapacity of those who represent the real majority to achieve better representation in the mass organizations; the bureaucratic maneuvers of a formal majority to keep itself in positions of power; the rapid change in political consciousness of those who elected these representatives due to developments in the revolutionary process itself. ?Those who only days before truly represented the majority may today simply represent a formal majority because the revolutionary situation has demonstrated to the masses that the position of the minority was correct.

7. The new culture of the left should also be reflected in a different approach towards the composition of leadership bodies in political organizations. For a long time it was believed that if a certain tendency or sector of the party won the internal elections by a majority, all leadership positions would be filled by cadres from that tendency. In a certain sense, the prevailing idea was that the more homogenous the leadership, the easier it would be to lead the organization. Today different criteria tend to prevail: a leadership that better reflects the internal balance of forces seems to work better, as it helps to get all party members, and not only those of the majority current, feeling more involved in the implementation of tasks proposed by the leadership.

8. But a plural leadership, along the lines that we are proposing, can only be effective if the organization has a truly democratic culture, because if that is not the case, then such an approach will produce a wave of unrest and render the organization ungovernable.

9. Moreover, a real democratization of the political organization demands more effective participation by party members in the election of their leaders: they should be elected according to their ideological and political positions rather than personal issues. That is why it’s important that the different positions are well known among the party membership via internal publications. It’s also very important to ensure a more democratic formulation of candidatures and to safeguard the secret vote.

10. Finally, it is essential to remember that the internal democratic culture of a political organization is the public face it offers to the social movements with which it wants to work. If it demonstrates, on the one hand, that its internal decision-making process occurs according to a democratic procedure based on tolerance and, on the other hand, that it carries out it work in a unitary manner, it can offers the social movements a model for successful action.

Bibliography of Marta Harnecker regarding the issue:

The left on the threshold of the twenty first century.  Making the impossible posible. Original title: La izquierda en el umbral del Siglo XXI. Haciendo posible lo imposible, Siglo XXI, España, 1999, 3ª ed. 2000 (410 pages). Cuba, Editorial de Ciencias Sociales, 2000; Portugal, Campo das Letras Editores, 2000; Brasil, Paz e Terra, 2000; Italia, Sperling and Küpfer Editori, 2001; Canadá (francés), Lantôt Éditeur, 2001; El Salvador, Instituto de Ciencias Políticas y Administrativas Farabundo Martí, 2001.

Vanguardia y crisis actual o Izquierda y crisis actual, Siglo XXI España, 1990. Published in: Argentina, Ediciones de Gente Sur, 1990; Uruguay, TAE Editorial, 1990; Chile, Brecha, 1990; Nicaragua, Barricada, 1990. Under the title Izquierda y crisis actual: México, Siglo XXI Editores, 1990; Perú, Ediciones Amauta, 1990; Venezuela, Abre Brecha, 1990; Dinamarca, Solidaritet, 1992.

[Marta Harnecker is originally from Chile where she participated in the revolutionary process of 1970-1973. She has written extensively on the Cuba Revolution, and on the nature of socialist democracy. She now lives in Caracas and is a participant in the Venezuelan revolution.]

  Should we reject

bureaucratic centralism

and simply use consensus?

By Marta Harnecker

Translated by Federico Fuentes

for Links International Journal of Socialist Renewal

[This is the fourth in a series of regular articles.]

1. For a long time, left-wing parties operated along authoritarian lines. The usual practice was that of bureaucratic centralism, influenced by the experiences of Soviet socialism. All decisions regarding criterion, tasks, initiatives, and the course of political action to take were restricted to the party elite, without the participation or debate of the membership, who were limited to following orders that they never got to discuss and in many cases did not understand. For most people, such practices are increasing intolerable.

2. But in challenging bureaucratic centralization, it is important to avoid falling into the excesses of ultra-democracy, which results in more time being used for discussion than action, since everything, even the most minor points, are the subject of rigorous debates that frequently impede any concrete action.

3. In criticizing bureaucratic centralization, the recent tendency has been to reject all forms of centralized leadership.

4. There is a lot of talk about organizing groups at all levels of society, and that these groups must apply a strict internal democracy, ideas that we obviously share. What we don’t agree with is the idea that no effort needs to put in the direction of giving them a common organic link. In defending democracy, flexibility and the desire to fight on many different fronts, what is rejected is efforts to determine strategic priorities and attempt to unify actions.

5. For some, the one and only acceptable method is consensus. They argue that by utilizing consensus they are aiming not to impose decisions but instead interpret the will of all. But the consensus method, which seeks the agreement of all and appears to be a more democratic method, can in practice be something profoundly anti-democratic, because it grants the power of veto to a minority, to such an extreme that a single person can block the implementation of an agreement that may be supported by an overwhelming majority.

6. Moreover, the complexity of problems, the size of the organizations and political timing that compels us to make quick decisions at specific junctures make it almost impossible to use the consensus method on many occasions, even if we leave aside the manipulating uses of the consensus method.

7. I believe that there cannot be political efficacy without a unified leadership that determines the course of action to follow at different moments in the struggle and to achieve this definition it is vital that a broad ranging discussion occurs, where everyone can raise their opinions and where, in the end, positions are adopted and everyone respects them.

8. For the sake of a unified course of action, lower levels of the organization should respect the decisions made by the higher bodies, and those who have ended up in the minority should accept whatever course of action emerges triumphant, carrying out the task together with all the other members.

9. A political movement that seriously aspires to transform society cannot afford the luxury of allowing undisciplined members to disrupt its unity, without which it is impossible to succeed.

10. This combination of single centralized leadership and democratic debate at different levels of the organization is called democratic centralism. It is a dialectic combination: in complicated political periods, of revolutionary fervor or war, there is no other alternative than to lean towards centralization; in periods of calm, when the rhythm of events is slower, the democratic character should be emphasized.

11. Personally, I do not see how one can conceive of successful political action if unified action is not achieved, and for that reason I do not think that another method exists other than democratic centralism, if consensus has not been reached.

12. A correct combination of centralism and democracy motivates the leaders and, above all, the members. Only creative action at every level of the political or social organization will ensure the triumph of our struggle. An insufficient democratic life impedes the unleashing of the creative initiative of all the militants, with its subsequent negative impact on their participation. In practice, this motivation manifests itself in the sense of responsibility, dedication to work, courage and aptitude for problem-solving, as well as in the capacity to express opinions, to criticize defects and exercise control over the higher up bodies in the organizations.

13. Only a correct combination of centralism and democracy can ensure that agreements are efficient, because having engaged in the discussion and the decision-making process, one feels more committed to carry out the decisions.

14. When applying democratic centralism we must avoid attempts to use narrow majorities to try and crush the minority. The more mature social and political movements believe that it is pointless imposing a decision adopted by a narrow majority. They believe that if the large majority of militants are not convinced of the course of action to take, it is better to hold off until the militants are won over politically and become convince themselves that such action is correct. This will help us avoid the disastrous internal divisions that have plagued movements and left parties, and avoid the possibility of making big mistakes.

Marta Harnecker’s bibliography on the topic:

La izquierda después de Seattle, Siglo XXI España, 2002.

La izquierda en el umbral del Siglo XXI. Haciendo posible lo imposible, Publicado en: México, Siglo XXI Editores, 1999; España, Siglo XXI Editores, 1ª ed., 1999, 2ª ed., 2000 y 3ª ed., 2000; Cuba, Editorial de Ciencias Sociales, 2000; Portugal, Campo das Letras Editores, 2000; Brasil, Paz e Terra, 2000; Italia, Sperling and Küpfer Editori, 2001; Canadá (francés), Lantôt Éditeur, 2001; El Salvador, Instituto de Ciencias Políticas y Administrativas Farabundo Martí, 2001.

Vanguardia y crisis actual o Izquierda y crisis actual, Siglo XXI España, 1990. Publicado en: Argentina, Ediciones de Gente Sur, 1990; Uruguay, TAE Editorial, 1990; Chile, Brecha, 1990; Nicaragua, Barricada, 1990. Con el título Izquierda y crisis actual: México, Siglo XXI Editores, 1990; Perú, Ediciones Amauta, 1990; Venezuela, Abre Brecha, 1990; Dinamarca, Solidaritet, 1992.

[Marta Harnecker is originally from Chile where she participated in the revolutionary process of 1970-1973. She has written extensively on the Cuba Revolution, and on the nature of socialist democracy. She now lives in Caracas and is a participant in the Venezuelan revolution.]

Serving Popular

Movements, Not

Displacing Them

By Marta Harnecker

translated by Federico Fuentes

for Links International Journal of Socialist Renewal

[This is the third in a series of regular articles. Click HERE for other articles in the series. Please return to Links regularly read the next articles in the series.]

1. We have previously stated that politics is the art of constructing a social and political force capable of changing the balance of forces in order to make possible tomorrow that which today appears to be impossible. But, to be able to construct a social force it is necessary for political organizations to demonstrate a great respect for grassroots movements; to contribute to their autonomous development, leaving behind all attempts at manipulation. They must take as their starting point that they aren’t the only ones with ideas and proposals and, on the contrary, grassroots movements have much to offer us, because through their daily struggles they have also learned things, discovered new paths, found solutions and invented methods which can be of great value.

2. Political organizations have to get rid of the idea that they are the only ones capable of generating creative, new, revolutionary and transformative ideas. And that therefore, their role is not only to make echo of the demands of the social movements, but to also be willing to gather ideas and concepts from these movements to enrich its own conceptual arsenal.

3. Political and social leaders should leave behind the method of pre-established schemas. We have to struggle to eliminate all verticalism that stifles the initiative of the people. The role of a leader must be one of contributing with ideas and experiences in order to help grow and strengthen the movement, and not displace the masses.

4. Their role is to push the mass movement forward, or perhaps more than push, facilitate the conditions necessary so that the movement can unleash its capacity to confront those that exploit and oppress them. But helping to push forward is only possible if we fight shoulder to shoulder in local, regional, national and international struggles.

5. The relationship of political organizations with grassroots movements should therefore be a two-way circuit: from the political organization to the social movement and from the social movement to the political organization. Unfortunately, the tendency continues to be that it only functions in the first direction.

6. It is important to learn to listen and to engage in dialogue with the people; it is necessary to listen carefully to the solutions proposed by the people themselves to defend their conquests or struggle for their demands and, with all the information collected, we must be capable of correctly diagnosing their mood and synthesize that which could unite them and generate political action, and at the same time tackle pessimistic and defeatist ideas they may hold.

7. Wherever possible, we must involve the grassroots in the process of decision making, that is to say, we have to open up new spaces for people’s participation, but people’s participation is not something that can be decreed from above. Only by taking as our starting point the true motivations of the people, only if one helps them to discover the necessity of carrying out certain task for themselves, and only by winning over their hearts and minds, will they be willing to fully commit themselves to the actions proposed.

8. This is the only way to ensure that efforts made to help orient the movement are not felt as orders coming from outside the movement and to help create an organizational process capable of involving, if not all, then at least an important part of the people into the struggle and, little by little, win over the more backward and pessimistic sectors. When these latter sectors understand that, as Che Guevara said, the aims we are fighting for are not only necessary but possible, they too will choose to join the struggle.

9. When the people realize that their own ideas and initiatives are being put into practice, they we see themselves as the protagonists of change and their capacity to struggle will enormously increase.

10. Taking all that has been said above into consideration, it becomes clear that the type of political cadres we need cannot be cadres with a military mentality -- today, it is not about leading an army, which is not to say that at some critical junctures this may and should be the case, nor that of a demagogic populist -- because it is not about leading a flock of sheep; political cadres should fundamentally be popular pedagogues, capable of fostering the ideas and initiative that emerge for within the grassroots movement.

11. Unfortunately, many of the current leaders have been educated in the school of leading the people by issuing orders, and that is not something that can be changed overnight. Thus, I do not want to create an impression of excessive optimism here. Achieving a correct relationship with the social movements is still a long way off.

Marta Harnecker`s bibliography on the topic

La izquierda después de Seattle, Siglo XXI España, 2002.

La izquierda en el umbral del Siglo XXI. Haciendo posible lo imposible, Publicado en: México, Siglo XXI Editores, 1999; España,    Siglo XXI Editores, 1ª ed., 1999, 2ª ed., 2000 y 3ª ed., 2000; Cuba, Editorial de Ciencias Sociales, 2000; Portugal, Campo das Letras Editores, 2000; Brasil, Paz e Terra, 2000; Italia, Sperling and Küpfer Editori, 2 001; Canadá (francés), Lantôt Éditeur, 2001; El Salvador, Instituto de Ciencias Políticas y Administrativas Farabundo Martí, 2001.

Hacia el Siglo XXI, La izquierda se renueva, Quito, Ecuador, CEESAL, 1991

Vanguardia y crisis actual o Izquierda y crisis actual, Siglo XXI España, 1990. Publicado en: Argentina, Ediciones de Gente Sur, 1990; Uruguay, TAE Editorial, 1990; Chile, Brecha, 1990; Nicaragua, Barricada, 1990. Con el título Izquierda y crisis actual: México, Siglo XXI Editores, 1990; Perú, Ediciones Amauta, 1990; Venezuela, Abre Brecha, 1990; Dinamarca, Solidaritet, 1992.

[Marta Harnecker is originally from Chile where she participated in the revolutionary process of 1970-1973. She has written extensively on the Cuba Revolution, and on the nature of socialist democracy. She now lives in Caracas and is a participant in the Venezuelan revolution. Posted May 28, 2009.]

Winning Hegemony

is Convincing,

Not imposing

By Marta Harnecker

Translated by Federico Fuentes

for Links International Journal of Socialist Renewal

[This is the second in a series of regular articles. Click HERE for other aticles in the series. Please return to Links regularly read the next articles in the series.]

1. Popular movements and, more generally, the different social protagonists who today are engaged in the struggle against neoliberal globalization both at the international and national levels reject, with good reason, attitudes that aim to impose hegemony or control on movements. They don’t accept the steamroller policy that some political and social organizations tended to use that, taking advantage of their position of strength and monopolizing political positions, attempt to manipulate the movement. They don’t accept the authoritarian imposition of a leadership from above; they don’t accept attempts made to lead movements by simply giving orders, no matter how correct they are.

2. Such attitudes, instead of bringing forces together, have the opposite effect. On the one hand, it creates discontent in the other organizations; they feel manipulated and obligated to accept decisions in which they’ve had no participation; and on the other hand, it reduces the number of potential allies, given that an organization that assumes such positions is incapable of representing the real interests of all sectors of the population and often provokes mistrust and skepticism among them.

3. But to fight against positions that seek to impose hegemony does not mean renouncing the fight to win hegemony, which is nothing else but attempting to win over, to persuade others of the correctness of our criteria and the validity of our proposals.

4. To win hegemony doesn’t require having many people in the beginning, a few is enough. The hegemony reached by Movimiento 26 de Julio (July 26 Movement) led by Fidel Castro in Cuba, seems to us to be a sufficiently convincing example of this.

5. More important than creating a powerful party with a large number of militants is to raise a political project that reflects the population’s most deeply felt aspirations, and thus win their minds and hearts. What is important is that its politics succeeds in procuring the support of the masses and consensus in the majority of society.

6. Some parties boast about the large numbers of militants they have, but, in fact, they only lead their members. They key is not whether the party is large or small; what matters is that the people feel they identify with its proposals.

7. Instead of imposing and manipulating, what is necessary is convincing and uniting all those who feel attracted to the project to be implemented. And you can only unite people if the others are respected, if you are willing to share responsibilities with other forces.

8. Today, important sectors of the left have come to understand that their hegemony will be greater when they succeed in bringing more people behind their proposals, even if they may not do so under their banner. We have to abandon the old-fashioned and mistaken practice of demanding intellectual property rights over organizations that dare to hoist their own banner.

9. If an important number of grassroots leaders are won over to these ideas, then it is assures that these ideas will more effectively reach the different popular movements. It is also important to win over distinguished national personalities to the project, because they are public opinion makers and will be effective instruments for promoting the proposals and winning over new supporters.

10. We believe that a good way to measure hegemony obtained by an organization is to examine the number of natural leaders and personalities that have taken up its ideas and, in general, the number of people who identify with them.

11. The level of hegemony obtained by a political organization cannot be measured by the number of political positions that have been won. What is fundamental is that those who occupy leading positions in diverse movements and organizations take up as their own and implement the proposals elaborated by the organization, despite not belonging to it.

12. A test for any political organization that declares itself not as not wanting to impose hegemony or control is being capable of proposing the best people for different positions, whether they are members of that very party, are independent or are members of other parties. The credibility among the people of a project will depend a great deal on the figures that the left raises.

13. Of course this is easier said than done. Frequently, when an organization is strong, it tends to underestimate the contribution that other organizations may have to offer and tend to impose its ideas. It is easier to do this than to take the risk of rising to the challenge to winning people over. While more political positions are obtained, the more careful we have to be of not falling into the desire to impose hegemony or control.

14. Moreover, the concept of hegemony is a dynamic one, since hegemony is not established once and for all. To maintain it requires a process of permanently re-winning it. Life follows its course, new problems arise, and with them new challenges.

[Posted May 25, 2009.]

Marta Harnecker’s bibliography on the topic:

La izquierda en el umbral del Siglo XXI. Haciendo posible lo imposible, Publicado en: México, Siglo XXI Editores, 1999; España,    Siglo XXI Editores, 1ª ed., 1999, 2ª ed., 2000 y 3ª ed., 2000; Cuba, Editorial de Ciencias Sociales, 2000; Portugal, Campo das Letras Editores, 2000; Brasil, Paz e Terra, 2000; Italia, Sperling and Küpfer Editori, 2001; Canadá (francés), Lantôt Éditeur, 2001; El Salvador, Instituto de Ciencias Políticas y Administrativas Farabundo Martí, 2001.

Hacia el Siglo XXI, La izquierda se renueva, Quito, Ecuador, CEESAL, 1991

Insurrections or Revolutions?
The Role of the Political Instrument

By Marta Harnecker

Links International Journal of Socialist Renewal

[First in a Series]

1. The recent popular uprisings at the turn of the 21st century that have rocked numerous countries such as Argentina and Bolivia -- and, more generally, the history of the multiple social explosions that have occurred in Latin America and the rest of the world -- have undoubtedly demonstrated that the initiative of the masses, in and of itself, is not enough to defeat ruling regimes.

2. Impoverished urban and country masses, lacking a well-defined plan, have risen up, seized highways, towns and neighbourhoods, ransacked stores and stormed parliaments, but despite achieving the mobilisation of hundreds of thousands of people, neither the size nor their combativeness have been enough to develop from popular insurrection into revolution. They have overthrown presidents, but they haven’t been able to conquer power and initiate a process of deep social transformations.

3. On the other hand, the history of triumphant revolutions clearly demonstrates what can be achieved when there is a political instrument capable of raising an alternative national program that unifies the struggles of diverse social actors behind a common goal; that helps to cohere them and elaborate a path forward for these actors based on an analysis of the existent balance of forces. Only in this manner can actions be carried out at the right place and right time, always seeking out the weakest link in the enemy’s chain.

4. This political instrument is like a piston that compresses steam at the decisive moment and -- without wasting any energy -- converts it into a powerful force.

5. In order for political action to be effective, so that protests, resistance and struggles are really able to change things, to convert insurrections into revolutions, a political instrument capable of overcoming the dispersion and fragmentation of the exploited and the oppressed is required, one that can create spaces to bring together those who, in spite of their differences, have a common enemy; that is able to strengthen existing struggles and promote others by orientating their actions according to a thorough analysis of the political situation; that can act as an instrument for cohering the many expressions of resistance and struggle.

6. We are aware that there are a number of apprehensions towards such ideas. There are many who are not even willing to discuss them. Such positions are adopted because they associate this idea with the anti-democratic, authoritarian, bureaucratic and manipulating political practices that have characterised many left parties.

7. I believe it is fundamental that we overcome this subjective barrier and understand that when we refer to a political instrument, we are not thinking of just any political instrument, we are dealing with political instrument adjusted to the new times, an instrument that we must built together.

8. However, in order to create or remodel this new political instrument, the left has to change its political culture and its vision of politics. This cannot be reduced to institutional political disputes for control over parliament or local governments; to approving laws or winning elections. In this conception of politics, the popular sectors and their struggles are completely ignored. Neither can politics be limited to the art of what is possible.

9. For the left, politics must be the art of making possible the impossible. And we are not talking about a voluntarist declaration. We are talking about understanding politics as the art of constructing a social and political force capable of changing the balance of force in favour of the popular movement, so as to make possible in the future that which today appears impossible.

10. We have to think of politics as the art of constructing forces. We have to overcome the old and deeply-rooted mistake of trying to build a political force without building a social force.

11. Unfortunately, there is still a lot of revolutionary phase-mongering among our militants; too much radicalism in their statements. I am convinced that the only way to radicalise a given situation is through the construction of forces. Those whose words are filled with demands for radicalisation must answer the following question: What are you doing to construct the political and social force necessary to push the process forward?

12. But this construction of forces cannot occur spontaneously, only popular uprisings happen spontaneously. It needs a protagonist.

13. And I envisage this political instrument as an organisation capable of raising a national project that can unify and act as a compass for all those sectors that oppose neoliberalism. As a space that directs itself towards the rest of society, that respects the autonomy of the social movements instead of manipulating them, and whose militants and leaders are true popular pedagogues, capable of stimulating the knowledge that exists within the people -- derived from their cultural traditions, as well as acquired in their daily struggles for survival -- through the fusion of this knowledge with the most all-encompassing knowledge that the political organisation can offer. An orientating and cohering instrument at the service of the social movements.

Posted May 21, 2009.

Marta Harnecker’s bibliography

?La izquierda después de Seattle, Siglo XXI España, 2002.

La izquierda en el umbral del Siglo XXI. Haciendo posible lo imposible, Publicado en: México, Siglo XXI Editores, 1999; España,    Siglo XXI Editores, 1ª ed., 1999, 2ª ed., 2000 y 3ª ed., 2000; Cuba, Editorial de Ciencias Sociales, 2000; Portugal, Campo das Letras Editores, 2000; Brasil, Paz e Terra, 2000; Italia, Sperling and Küpfer Editori, 2001; Canadá (francés), Lantôt Éditeur, 2001; El Salvador, Instituto de Ciencias Políticas y Administrativas Farabundo Martí, 2001.

Hacia el Siglo XXI, La izquierda se renueva, Quito, Ecuador, CEESAL, 1991

Vanguardia y crisis actual o Izquierda y crisis actual, Siglo XXI España, 1990. Publicado en: Argentina, Ediciones de Gente Sur, 1990; Uruguay, TAE Editorial, 1990; Chile, Brecha, 1990; Nicaragua, Barricada, 1990. Con el título Izquierda y crisis actual: México, Siglo XXI Editores, 1990; Perú, Ediciones Amauta, 1990; Venezuela, Abre Brecha, 1990; Dinamarca, Solidaritet, 1992.

[Marta Harnecker is originally from Chile where she participated in the revolutionary process of 1970-1973. She has written extensively on the Cuba Revolution, and on the nature of socialist democracy. She now lives in Caracas and is a participant in the Venezuelan revolution.]

Marx, Marxism and

the Cooperative Movement

By Bruno Jossa
Economics, University of Naples

Cambridge Journal of Economics, 2005

1. Introduction

On several occasions Marx declared himself strongly in favor of cooperative firms, maintaining that their generalized introduction would result in a new production mode. At different times in his life he even seems to have been confident that cooperatives would eventually supplant capitalistic firms altogether. Lenin also endorsed the cooperative movement and in a 1923 work (entirely devoted to this subject) he went so far as to equate cooperation with socialism at large. More precisely, besides describing cooperation as an important organizational step in the transition to socialism, he explicitly argued that "cooperation is socialism" (Lenin, 1923). All the same, ever since the time of the Paris Commune the cooperative movement has received little attention from Marxists.

One argument we intend to set forth in our analysis is that this scant attention for the cooperative movement is due at least in part to the kind of cooperative - a firm in which workers are "their own capitalists" (Marx, 1894, p. 571) - that has asserted itself in history, because this leads to endorse the view that a system of producer cooperatives is not a genuine form of socialism.

However, modern economic theory has shown that the pure cooperative is Vanek's LMF (see Vanek, 1971a e 1971b), which does not self-finance itself and whose workers can consequently not be correctly described as "their own capitalists". And this consideration disproves the arguments of those Marxists who maintain that cooperatives are, by their very nature, an intermediate form in between capitalism and socialism.

But what are the implications of the above reflections? Once we have made it clear that Marx looked upon cooperation as a new production mode which supersedes capitalism, Marxists fall into at least two distinct groups: those who maintain that in Marxian terms socialism must be identified with a system of self-managed firms and those who equate socialism with a state-planned command economy. And concerning these two groups it is possible to argue that "both are aware that it is very difficult to find any consistent chain of authentic evidences indicating Marx's willingness to subscribe to either system" (see Selucky, 1974, p. 49). Furthermore, there is general consensus that Marx's writings, especially those about the economic system of the future, contain no doctrine, but only fragments (see Balibar, 1993, p. 169) and that to Marx methodology was the only thing that mattered. In support of this view, Horvat (1969, p. 90) quotes a passage from Engels (1985) stating that "all concepts of Marx are not doctrines but methods. They do not provide complete doctrines but starting points for further research and methods for that research".

With all the caution required by such considerations, we do think it possible to argue that an efficient system of producer cooperatives is a socialist order which may supersede capitalism in full harmony with Marxist thought.

Hence this article has a dual aim: firstly, to draw attention to a number of passages in which Marx explicitly extolled the cooperative movement and thereby confute the wrong, but widely held assumption that Marx was inimical to the market and rejected cooperation as a production mode even for the transition period; secondly, to argue that the continuing neglect of Marxists both of the cooperative movement and of the passages from Marx (and Engels) that present a system of producer cooperatives as a new production mode can be traced back in part to the late emergence of an economic theory of producer cooperatives.

2. Marx's approach to producer cooperatives

An excerpt from Marx (1864) runs as follows:

"But there was in store a still greater victory of the political economy of labour over the political economy of property. We speak of the co-operative movement, especially of the co-operative factories raised by the unassisted efforts of a few bold 'hands'. The value of these great social experiments cannot be over-rated. By deed, instead of by argument, they have shown that production on a large scale, and in accord with the behest of modern science, may be carried on without the existence of a class of masters employing a class of hands; that to bear fruit, the means of labour need not be monopolised as a means of dominion over, and of extortion against, the labouring man himself; and that, like slave labour, like serf labour, hired labour is but a transitory and inferior form, destined to disappear before associated labour plying its toil with a willing hand, a ready mind, and a joyous heart" (Marx, 1864, p. 11).

And in the third volume of Capital Marx argues:

"With the development of co-operatives on the workers' part, and joint-stock companies on the part of the bourgeoisie, the last pretext for confusing profit of enterprise with the wages of management was removed, and profit came to appear in practice as what is undeniably was in theory, mere surplus-value, value for which no equivalent was paid" (Marx, 1894, pp. 513-14).

These passages are clear evidence of Marx's belief that a system of cooperative firms is not only feasible, but bound to assert itself in history and that it gives rise to a new production mode in which wage labour is swept away and the means of production - what economists term capital - would no longer be used to enslave workers. In such a system, workers would not only cease being exploited; they would feel free and happy to work for firms owned by them.

The system of producer cooperatives envisaged by Marx is a market system where workers become "their own masters" (Mill, 1871, p. 739) and where owners of capital are deprived of decision power concerning production activity. This system is "in accord with the behest of modern science" and, at the same time, efficient - even more efficient than capitalism - because it entails a new production mode arising spontaneously within the older production mode and improving on it.

This thesis is confirmed by other well-known passages from Capital, which clearly reveal how Marx looked upon a system based on producer cooperatives as a new production mode superior to that of capitalism. Immediately before the lines quoted below Marx had described joint-stock companies as a first step toward "the abolition of capitalist private industry", though "within the capitalist system itself" (Marx, 1894, pp. 570-71) and further on, we read:

"The co-operative factories run by workers themselves are, within the old form, the first examples of the emergence of a new form, even though they naturally reproduce in all cases, in their present organization, all the defects of the existing system, and must reproduce them. But the opposition between capital and labour is abolished there, even if at first only in the form that the workers in association become their own capitalists, i.e. they use the means of production to valorise their labour. These factories show how, at a certain stage of development of the material forces of production, and of the social forms of production corresponding to them, a new mode of production develops and is formed naturally out of the old" [...] "Capitalist joint-stock companies as much as cooperative factories should be viewed as transition forms from the capitalist mode of production to the associated one, simply that in one case the opposition is abolished in a negative way, and in the other in a positive way" (Marx, 1894, pp. 571-72).

To understand why Marx emphasised the need to abolish wage labour even in a production system remaining purely mercantile in nature, we have to bear in mind that one main advantage of producer cooperatives (from the perspective of a critic of capitalism) is to realize economic democracy as an essential component of political democracy. As is well known, Marx, Marxists and, generally, critics of society think of political democracy as merely formal, since power remains firmly in the hands of capitalists or, in other words, capital is still the economic power holding everything in its sway.

Another excerpt from Capital relevant in this connection is reported below:

"Capitalist production has itself brought it about that the work of supervision is readily available quite independent of the ownership of capital. It has therefore become superfluous for this work of supervision to be performed by the capitalist. A musical conductor need in no way be the owner of the instruments in his orchestra, nor does it form part of his function as a conductor that he should have any part in paying the 'wages' of the other musicians. Cooperative factories provide the proof that the capitalist has become just as superfluous as a functionary in production as he himself, from his superior vantage-point, finds the large landlord" (Marx, 1894, p. 511).

Here Marx was clearly thinking of a form of market economy in which capitalists would be deprived of their power .

3. Cooperatives as a starting point for State planning and the role of the State

In Marxian terms, cooperative production is not an end to itself, but "a lever for uprooting the economic foundations upon which rests the existence of classes" (Marx, 1871, p. 334) and a means of organising the domestic production system in line with an all-inclusive plan. This can be inferred from Marx's comments on the experience of the Paris 'Commune':

"The Commune, they exclaim, intends to abolish property, the basis of civilization! Yes, gentlemen, the Commune intended to abolish that class-property which makes the labour of the many the wealth of the few. It aimed at the expropriation of the expropriators. It wanted to make individual property a truth by transforming the means of production, land and capital, now chiefly the means of enslaving and exploiting labour, into mere instruments of free and associated labour […]. But this is Communism, 'impossible' Communism! Why, those members of the ruling class who are intelligent enough to perceive the impossibility of continuing the present system - and they are many - have become the obtrusive and full-mouthed apostles of co-operative production. If cooperative production is not to remain a sham and a mare; if it is to supersede the capitalist system; if the united co-operative societies are to regulate national production upon a common plan, thus taking it under their control, and putting an end to the constant anarchy and periodical convulsions which are the fatality of Capitalist production - what else, gentlemen, would it be but Communism, 'possible' Communism?" (Marx, 1871, p. 335).

In Marx's view, the Paris Commune "supplied the Republic with the basis of really democratic institutions" and could therefore be looked upon as "the political form, at last discovered, under which to work out the economical emancipation of Labour" (Marx, 1871, p. 334). It brought about "the expropriation of expropriators". And Engels added that "the Paris Commune demanded that the workers should manage cooperatively the factories closed down by manufacturers" (Engels, 1886, p. 389)

In this connection, Easton has rightly argued that Marx "sees cooperatives as the economic corollary of the 'really democratic institution' of the Commune" (1994, 162) and that "in his view of the state he sees cooperative production not as a matter of simple negation of the existing capitalist system, but rather as a dialectical transcendence that negates as it preserves" (Easton, 1994, p. 162).

In his critique of Bakunin's Statehood and Anarchy, Marx himself provided the following explanation of his contention that the proletariat was to organise itself in such a way as to become the dominant class:

"It means that the proletariat, instead of fighting individual instances against the economically privileged classes, has gained sufficient strength and organization to use general means of coercion in its struggle against them; but it can only make use of such economic means as abolish its own character as wage labourer and hence as a class; when its victory is complete, its rule too is therefore at an end, since its class character will have [disappeared]" (see  Marx, 1875b, p. 519).

This passage illustrates how the proletariat may acquire the strength required to abolish wage labour, but in today's democratic societies, where workers' interests are endorsed by political parties capable of winning the consensus of the majority of the people, there are no reasons to deny that the "general means of coercion" needed to contrast the economically privileged classes could well be a single Act of Parliament prohibiting wage labour altogether. When asked if private property could be abolished by peaceful means, Engels replied that "it is to be desired that this could happen, and Communists certainly would be the last to resist it" (Engels, 1847a, p. 349), but he added that such peaceful means were being opposed by the class in power and that the use of violence to deviate progress from the direction in which it was heading was likely to induce the oppressed proletariat to fight a revolution in order to acquire its freedom (Engels, 1847a, pp. 349-50).

The work from which these passages have been taken, namely the Principles of Communism, was written at roughly the same time as Marx and Engels' Manifesto and Engels explicitly emphasised that differences between the two texts arose from the fact that in the Manifesto their shared ideas about the road towards communism had only been expounded to the extent it was thought expedient to make them public (see Engels, 1847a, p. 114, as quoted in Lawler, 1994).

The part democracy can play in fostering the advent of socialism is also suggested in the following excerpt from Engels (1895, pp. 515-16): "The Communist Manifesto had already proclaimed the winning of universal suffrage, of democracy, as one of the first and most important tasks of the militant proletariat, and Lassalle had again taken up this point. Now that Bismarck found himself compelled to introduce this franchise as the only means of interesting the mass of the people to his plans, our workers immediately took it in earnest and sent August Bebel to the first, constituent Reichstag. And from that day on they have used the franchise in a way which has paid them a thousandfold and has served as a model to the workers of all countries".

However, according to our authors the contention that cooperatives can assert themselves in a capitalistic system thanks to State aid is only applicable to situations in which workers have already attained political power, for neither Marx nor Engels believed that the State could be expected to help workers in their effort to "expropriate expropriators" in a society in which the bourgeoisie wields power.

In the Critique of the Gotha Programme Marx rejects both Lassalle's idea of the State and his belief that workers' emancipation should be brought about by a system of state-aided producer cooperatives. Based on the Gotha programme, a means of solving social problems was to demand State aid to fund the establishment of producer cooperatives under the democratic control of the mass of the working people. Marx disagreed on this point by objecting "that the workers' desire to establish the conditions for cooperative production on a social scale, and first of all on a national scale, in their own country, only means that they are working to transform the present conditions of production, and it has nothing in common with the foundation of co-operative societies with state aid" (Marx, 1875a, pp. 93-94). Otherwise - Marx argued - socialism would be established through State action - in stark contrast with the central idea of scientific socialism that workers will only achieve emancipation through their own efforts. If workers were to require the support of the State for their revolutionary movement, they would thereby only reveal their "full consciousness that they neither rule nor are ripe for rule!" (Marx, 1875a, p. 93).

Accordingly, Marx concludes that "as far as the present co-operative societies are concerned, they are of value only insofar as they are the independent creations of workers and not protégés either of the governments or of the bourgeoisie" (Marx, 1875a, p. 94).

The foregoing reflections suggest the conclusion that from the perspective of Marx and Engels a gradual growth of the cooperative movement "fostered by national means" could even come about by peaceful means, though only after workers have acquired a majority of the seats in parliament.   The egalitarian implications of such a thesis are evident.

Marx's pro-cooperation attitude - let us repeat it - is to be viewed in the light of his fundamental belief that neither legal relationships nor political organisation systems can be properly understood in their own right, since they have their roots in material production relationships, i.e. in that web of relations that Hegel termed 'civil society' (see Marx, 1859, p. 262). As mentioned before, a 'civil society' organised as a system of producer cooperatives is one where capital is no longer the economic power holding everything in its sway and where those owning substantial property are prevented from imposing their will upon the rest of the population. The commodities manufactured by democratically managed cooperatives cease to be "in the first place an external object" unrelated to our work (see Marx, 1867, p. 125 and Holloway, 2001, p. 66), and turn into the product of free choices made by workers in association.

Therefore, the question why Marxists and, generally, the Left continued to give little attention to the cooperative movement still remains to be answered.

4. The dialectic view of transition

In Marxist theory, cooperatives are held to perpetuate some of the main defects of capitalism, in particular the anarchical nature of production and, generally, all the shortcomings of a market economy; but is it possible to think of cooperatives as the typical institutions of the transition to communism?

To shed light on Marx and Engels' notion of transition we have to contrast a dialectical view of the passage from one form of society to another with a 'nihilistic' stance envisaging the total destruction of the previous social order. The latter view is held by all those maintaining that the rise of the working class to power should be promptly followed by the establishment of a new social order with characteristics diametrically opposed to those that Marx and Engels criticised in capitalism: the division of society into classes, with masters exploiting the working class, and the anarchical nature of production (see Engels, 1882b, p. 285). The new social order to be established forthwith after the abolition of capitalism would consequently have to be a classless society with centralised planning: the order that the Soviet Union established following the rise of Stalin to power and which finally collapsed in 1989.

This view of transition, which Lawler described as 'nihilistic', goes back to some of Marx and Engels' own writings, including the Manifesto of the Communist Party, where the task assigned to the proletariat following the attainment of power is "to centralise all instruments of production in the hands of the State" (p. 504).

In Antiduhring Engels (1878, pp. 269-70) writes:

"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". 

On closer analysis, though, Marx and Engels' idea of transition is a dialectic view in which the way capitalism is negated depends both on what is negated and on the end to be attained.  This means that those in power must guarantee the transfer of some traits of the older social order into the new one. In this dialectic view, private property is a step or stage in the evolution of humankind, not a form of cancer that must be eradicated to enable the healthy members of the social organism to assert themselves (Lawler, 1994, p. 188).  Far from entailing a regression, socialism must ensure an advancement over capitalism just as it negates it; and with respect to the creation of material wealth, it must ensure levels of growth exceeding those of capitalism, rather than bring about a generalised level of poverty, however egalitarian.

The dialectic approach also necessitates thinking of the transition from the older to the newer social order as an extended period of gradual adjustment, not as a short process in which the salient characteristics of capitalist society are negated at one stroke.

The contrast between these two different views of transition first surfaces in an early work such as the Economic and Philosophical Manuscripts of 1844 (pp. 294-95), which describes a coarse and material form of communism aimed "to destroy everything which is not capable of being possessed by all as private property" and to oppose "universal private property to private property". In Marx's view, "this type of Communism - since it negates the personality of man in every sphere - is but the logical expression of private property, which is this negation" (p. 295). It is born of envy and greed, because "the thought of every piece of private property as such is at least turned against wealthier private property in the form of envy and the urge to reduce things to a common level" (p. 295). 

As mentioned above, the Manifesto includes reflections and arguments in support of both a nihilistic and a dialectic view of transition. One of the latter reads as follows: "the distinguishing feature of Communism is not the abolition of property generally, but the abolition of bourgeois property" (Marx and Engels, 1848b, p. 498).And Marx and Engels made it clear that workers are entitled to the results of their work and that each of them is to be allowed to appropriate what he produces. Hence they argue:

"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 appropriation" (p. 500).

These excerpts are in line with the idea that the overthrow of capitalism coincides with the abolition of hired labour and that in a new social order born of the ashes of the older world the importance of producer cooperatives operating within the market springs from the abolition of the very possibility to hire the wage labour that capitalistic firms use.

An even more significant point is the gradual nature of the process whereby the old society will give way to the new social order - a notion set forth in numerous passages of the Manifesto including the one quoted below:

"The proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the State" (p. 504).

The stepwise nature of this process is also emphasised in Marx and Engels' programme for the period immediately after the rise of the working class to power. Among others, this programme includes the following measures (p. 505):

    - the abolition of property in land;

    - a heavy progressive income tax;

    - the abolition of all rights of inheritance;

    - the confiscation of property owned by rebels and emigrants;

    - the concentration of credit and transport in the hands of the State;

    - the nationalisation of an increasing number of firms.

The fact that Marx and Engels did not think of transformation as the instantaneous nationalisation of all means of production and simultaneous launch of an all-comprehensive centralised plan emerges even more clearly from Principles of Communism. There Engels argued that once in power, workers would create "a democratic constitution" and that "democracy would be quite useless to the proletariat if it were not immediately used as a means of carrying through further measures" - progressive income taxes, heavy inheritance and legacy taxes and the gradual expropriation of owners of land, buildings, railways and vessels, in part due to the competition of State industry and in part directly, against payment of compensation (Engels, 1847a, pp. 350-51).

As Engels had just argued that private property was to be abolished "only gradually" (Engels, 1847a, p. 350), the above passage makes it clear that this gradual process was to be fuelled both by the 'spontaneous' mechanism of competition and by compensation payments by the State - in short, without recourse to revolutionary violence. 

Nonetheless Marx sees it as natural, even inevitable, that upon seizing power workers oppressed by capitalism will embrace the nihilistic view of transition (see Marx, 1844, pp. 204-95 e Lawler, 1994, p. 189).

On the subject of the nihilistic view to the transition, let us add that while Marx and Engels certainly conceived of the plan as an antidote to the anarchical nature of the capitalistic market, they were thinking of a plan for abolishing the production of commodities and so not based on the law of value; in other words, they conceived of the dialectic market-plan opposition as an example of the conflict between necessity and freedom. In their view, therefore, the opposite of the capitalist market was not the socialist plan, which remains the realm of necessity, but the plan of a Communist society, because "the realm of freedom really begins only where labour determined by necessity and external expediency ends; it lies, by its very nature, beyond the sphere of material production proper" (see Marx, 1894, pp.958-59; see also Engels, 1878, pp. 266-71 and Marx and Engels, 1845-46, pp.51-52 and 81).

The arguments set forth in this paragraph should have provided sufficient evidence that a system of cooperatives is hardly objectionable in Marxian terms. Being a market economy, from a Marxian perspective it must rather be looked upon as a transitional economic system.

5. The logic behind Marxist criticisms of cooperatives

As cooperatives cannot be blamed for failing to do away with the market instantly, on what grounds did Marxists resolve not to rely on them for the transition to communism?

One reason behind the scant attention of Marxists for the cooperative movement to this day is the fact that Marx himself ceased to concern himself with cooperative firms following the collapse of the Paris Commune. And this may in turn be explained with the difficulties experienced by the cooperative movement from the 1870s onward (see Bernstein, 1899, pp. 149-52). As is well known, Marxism has always been held to be a form of "scientific socialism", a movement which in lieu of simply 'preaching' the advent of communism, theorises it as an inescapable event;  and an unsuccessful movement will hardly be rated a proper vehicle for the establishment of communism. The cooperative production mode - Kautsky wrote - may only arise in a sparse and incomplete manner, without ever asserting itself as the dominant form (Kautsky, 1892, p. 109).

In the early 20th century a well-known Italian Marxist endorsed much the same opinion when he argued that for some time Marx showed confidence in the cooperative firms that workers in association were running as 'their own capitalists", but that later on he lost such confidence; and he ascribed this loss of confidence to the collapse of many producer cooperatives between 1860 and 1870 and to Marx's own reappraisal of the very nature of the transition stage (see Leone, 1902, p. 287).

Thus it is possible, though not certain, that Marx lost faith in the cooperative movement.

More convincing is the argument that the scant attention of Marxists for the cooperative movement after a given point in time was due to Kautsky's and Lassalle's turn to statism. Marxists increasingly equated socialism with the nationalisation of production means and when, following the Bolshevik revolution, a choice was to be made between State enterprises and cooperative firms, they systematically gave priority to the former over the latter (see, for all, Preobrazhensky, 1926, pp. 17, 218ff and 238ff).

Still another explanation of the criticisms levied by Marxists against cooperation may be suggested by the following excerpt from the Manifesto of the Communist Party (1848, p. 513):

"We may cite Proudhon's Philosophie de la misére as an example of this form. The Socialistic bourgeois want all the advantages of modern social conditions without the struggles and dangers necessarily resulting therefrom. They desire the existing state of society minus its revolutionary and disintegrating elements. They wish for a bourgeoisie without a proletariat. The bourgeoisie naturally conceives the world in which it is supreme to be the best; and bourgeois Socialism develops this comfortable conception into various more or less complete systems".

These lines may justify the doubt that Marx and Engels thought of a system of producer cooperatives as a "conservative or bourgeois form of Socialism". However, restricting our analysis to this passage for the moment, is it possible to argue that a system of producer cooperatives is a society with "a bourgeoisie without a proletariat" or with a proletariat and no bourgeoisie? Or, can this passage from the Manifesto be read as a criticism of producer cooperatives? Clearly, so long as we think of bourgeois society as a system characterised by capitalist production relations and dominated by the owners of production means who subjugate the class of proletarians  and picture to themselves the world in which they are supreme as one bound to last forever, these questions will have to be answered in the negative.

Nonetheless, Beatrice Webb, Rodbertus and Bernstein spelt it out in bold letters that cooperation can at most be equated with a middle way between capitalism and socialism, not with socialism proper (see Potter,1893 and Bernstein, 1899, pp. 154-55).  

In our opinion, the late formulation of an economic theory of cooperation may be one further explanation of the scant attention of Marxists for cooperative firms. Ward's analysis, which was published in 1958, is the very first economic theorization of producer cooperatives. Thus there is every reason to believe that existing cooperatives have not been organised in line with criteria of economic efficiency and that the late emergence of an economic theory of producer cooperatives may be at least in part responsible for the scant success of the cooperative movement (see Vanek, 1971a and 1971b).

Discussing the distinction between WMFs and LMFs and the factors which determine that WMFs (unlike LMFs) are doomed to fail by their very nature (see below), Vanek argued (1971b, p. 187):

"In my opinion, […] the arguments presented hereafter are so powerful in explaining the shortcomings of traditional or conventional forms of producer cooperatives and participatory firms that they offer an ample explanation of the comparative failures of these forms in history ever since they were first conceived of by the writers of the eighteenth and nineteenth centuries. The development of this analysis was to me personally most gratifying. It had always puzzled me how it could have been possible that a productive organization based on cooperation, harmony of interests and the brotherhood of men, so appealing and desirable on moral and philosophical grounds, could have done so poorly when subjected to a practical test. It seems to be that we now have both an explanation and a way of remedy".

But there is more to this, for the late appearance of an economic theory of cooperation also points to ideological causes behind the scant interest of Marxists in the cooperative movement.

Defining cooperatives in his own (and Marx's) time in an 1865 work and discussing the distinctions made by economists between the main sources of wealth, land, capital and labour, Walras argued that individuals tend to accumulate ever greater quantities of all three types of wealth until, in due time, they gradually become owners of land, capital and labour. Carrying his point to extremes, Walras went so far as to describe economic progress as the road towards a fuller access of individuals to all categories of wealth and, in particular, of workers to the ownership of capital (Walras, 1865, p. 14).

Accordingly he ascribed to cooperatives two distinctive elements:

a)    in terms of scope, a tendency towards creating venture capital which is indivisible because owned by all the members, and

b)    in terms of the source of such resources, the fact that this venture capital is formed of wage deductions (see Walras, op. cit., pp. 5-6).

Based on the above, Walras maintained that the essence of cooperation could succinctly be described as a means of enabling workers to acquire capital through saving (Walras, op. cit., p. 7).

Walras' analysis sheds light on the causes of the scant concern of Marxists with cooperation. As he theorised the approach to cooperation in his own and Marx's time better than any other, his arguments may both explain Marx's description of cooperatives as firms in which workers were "their own capitalists" and why Marxists gradually adopted the view that a system of cooperatives would result in a sort of "producer capitalism". And there is little doubt that, in so far as a system of cooperatives is a form of capitalism, it may not be worthwhile fighting for it.

This provides an opportunity to stress how the contribution recently made by economists to the theory of cooperation may help disprove the criticisms of Marxists. Following the appearance of Ward's 1958 article, economists drew a distinction between two different types of cooperatives, WMFs and LMFs. The former, which are widespread in the Western world, self-finance themselves and consequently do not strictly separate labour incomes from capital incomes; their members earn mixed incomes (from capital and work), in place of pure incomes from work. By contrast, LMFs are cooperatives which fund themselves with loan capital and consequently draw a clear-cut distinction between incomes from work and incomes from capital or property. And Vanek and others have produced in-depth analyses of the reasons - in the first place the need to avert underinvestment - why cooperatives should be the LMF type.

For the purposes of this article the above distinction is decisive. If we describe the LMF as the 'ideal type' of producer cooperative, we are also in a position to show that cooperatives are truly socialist firms. As is well known, there are three "factors of production": land, capital and labour. Excluding land, which gradually lost importance following the Industrial Revolution, a firm setting out to operate in the market may choose between two organisational options: management by the owners of capital (or their representatives) or management by the workers themselves (or their representatives). In the former case it is a capitalistic firm, in the latter case it is a real and proper socialist firm.

More precisely, if the cooperative is the LMF type, the opposition between these two forms of business enterprise can be expressed as follows:

in the capitalistic firm it is the owners of capital or their representatives that hire workers, pay them a fixed income (wage) and appropriate all profits,

in a cooperative firm it is the workers (or their representatives) that borrow capital, pay fixed income (interest) thereon and appropriate the residual.

Thus the producer cooperatives theorised by economists are not only non-capitalistic firms, but socialist firms proper, since compared to their capitalistic counterparts they effectively reverse the capital-labour relationship.  And this clearly entails that in genuine Marxian terms a system of cooperative firms would afford a major advancement over capitalism within a market economy.

In the light of this clarification, the excerpts in which Marx enthusiastically anticipates the advent of a system of cooperatives will promptly appear in their right perspective.

6. Conclusions

As late as 1886, Engels wrote (p. 389): "My proposal envisages the introduction of cooperatives into existing production [...] just as the Paris Commune demanded that the workers should manage cooperatively the factories closed down by the manufacturers"; and just a few lines below he added that neither Marx nor he himself had "ever doubted that, in the course of the transition to a wholly communist economy, widespread use would have to be made of cooperative management as an intermediate stage". Like others quoted above, these passages lead us to endorse the conclusion of Brachet, one of the earliest writers to have focused attention on Marx's opinions on self-management: "those holding socialism to be a system where workers self-manage the production and distribution apparatuses are perfectly in tune with Marxian thought on this point" (see Brachet, 1975, p. 303; see, also, among others, Damjanovic, 1962; Bourdet, 1974, p. 49ff; Selucky, 1974; Pelikan, 1977, p. 143 ff.; Schweickart, 1992; Lawler, 1998; for a different opinion, see, inter alia, Ollman, 1998b, pp. 113-18).

At this point it is worth asking ourselves if we have adequately accounted for the scant enthusiasm of Marxists for the cooperative movement. As mentioned above, in our opinion an important reason for this neglect is that existing cooperatives fit into the self-financing type (WMFs) in which workers are "their own capitalists" because this corroborates the approaches of Beatrice Webb, Rodbertus and Bernstein, according to whom cooperatives are, by their very nature, an intermediate form between the capitalistic and socialistic firm and do consequently not deserve being stoutly upheld by Marxists. Yet recent economic theorisations on producer cooperatives have cut these criticisms at the root. As Vanek has argued more cogently than any others, the moment when cooperatives are prevented from self-financing themselves (i.e. provided they are organised as LMFs in lieu of WMFs), the description of producer cooperatives as firms run by workers as "their own capitalists" will no longer apply. And as the LMF reverses the capitalistic relationship between capital and labour, it can doubtless be rated a genuine socialist enterprise in which workers cease acting as their own capitalists.

Concluding, we wish to mention that this paper is not intended to provide evidence that Marx consistently and continually thought of a system of cooperative firms as the best way out of capitalism. Such a purpose, which would need the support of a historical analysis of Marx's thought, lies outside the scope of this essay, whose concern is neither with the history of thought nor with the historical evolution of the socialist movement.

Rather, what we set out to show was that following Vanek's contribution a system of producer cooperatives is fully consistent with Marxist thought and can no longer be viewed as a disguised form of capitalism.

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Summary: Marx, Marxism and the cooperative movement (J.E.L. B13, D23,D74)

This article has a dual aim: firstly, to draw attention to a number of passages in which Marx explicitly extolled the cooperative movement and thereby confute the wrong, but widely held assumption that Marx was inimical to the market and rejected cooperation as a production mode even for the transition period; secondly, to argue that the continuing neglect of Marxists both of the cooperative movement and of the passages from Marx (and Engels) that present a system of producer cooperatives as a new production mode can be traced back in part to the late emergence of an economic theory of producer cooperatives.  Marx looked at the cooperative movement as a new production mode arising within the capitalistic production mode and capable of outperforming it ; and we argue also that the passages of Marx's work in which these reflections are set out were completely forgotten because of the erroneous assumption that Marx was a straightforward enemy of the market and advocated its elimination forthwith  after the enactment of a revolution.

How a Green Economy

Is an Antidote to

Casino Capitalism

By Robert Pollin

New Labor Forum

April 2, 2009 - The convergence of a profound economic crisis and the inauguration of Barack Obama as President has created both tremendous challenges and opportunities for progressives in the United States. Two of the overarching economic issues around which progressives will need to struggle are: first, how to build a clean energy economy, creating millions of good jobs in the process; and second, how to create a financial system focused on channeling money toward productive investment as opposed to destabilizing speculation.

In fact, the link between these matters becomes clear once we pose the simple question: how can we pay for the transition to a clean energy economy? Realistically, there is no way to construct a clean energy economy -- driven by solar, wind, and geothermal power and biomass fuels, and operating at dramatically higher levels of energy efficiency -- unless trillions of dollars are channeled into this project over the next 20 years.

Considered on an annual basis, it is reasonable to assume that a green investment program should be in the range of $150 billion per year. This is roughly equal to 1 percent of the United States gross domestic product (GDP) or equal to the current level of our spending on the Iraq war. A green investment program of this size would create about 2.5 million new jobs within the U.S. economy. But as long as Wall Street continues to squander trillions chasing speculative profits and generating financial bubbles -- i.e. variations on the housing market, stock market, and emerging economy bubbles that we experienced just over the past decade alone -- there will not be enough money available to adequately finance a clean energy transformation.

There are only two possible ways to finance a clean energy transition -- public funding, with money coming from either the U.S. or individual states’ treasuries; or private funding, with money coming from private businesses and households. We often think about large-scale economic policy initiatives as necessarily being funded by the federal government. In fact, both public and private sources of funds will be needed to build a clean energy economy. But the key will be to ensure that private funds are channeled into green investments and away from fossil fuels.

Public Funding

With public funding, the two ways to raise funds are through increasing revenues or taking money out of existing government programs. Government borrowing to finance green investments -- i.e. deficit spending -- is a perfectly viable strategy in the short term. Indeed, in the current economic slump, government deficit spending is the most effective approach to inject new spending into the economy, targeted at green investments and jobs. But beyond the short run, government borrowing must be repaid with interest.

This brings us back to the two basic funding sources, increasing revenues or transferring funds from existing programs. Both possibilities should be pursued. But as we will see, it will be difficult to find enough money -- reaching to the $150 billion per year level -- from any combination of public sources. A more realistic figure for public funding may be closer to about $50 billion, i.e. one-third of the total needed.

In terms of increasing revenues, the most widely discussed proposal is the so-called cap-and-trade system that I discussed my last New Labor Forum column. This would set limits on total carbon emissions. Energy companies would receive permits from the government establishing how much fossil fuel energy they could produce. The government can raise money through a cap-and-trade system by selling the permits at an auction. This would enable only those companies paying top dollar to have the legal right to produce oil, natural gas, or coal.

The carbon permit auctioning system could be a major new source of revenue for the U.S. Treasury. Estimates range between $75 and $200 billion per year generated by a measure similar to that which Congress debated last year (before being killed by Senate Republicans).

However, setting limits on the production of oil, natural gas, and coal through the cap-and-trade system will also mean that energy companies will raise prices for consumers. The government could compensate consumers for the higher gas and coal prices by rebating the cap-and-trade revenues back to them. This would be an eminently fair use of the auction revenues. People working in the oil, gas, and coal industries would also have fair claims to significant adjustment support, after the cap-and-trade requirements forced these industries to contract. These demands on the cap-and-trade auction revenues would then deplete the public funds available to finance clean energy investments. The amount left over to finance green investments would almost certainly fall significantly below $50 billion.

In terms of funds available from already existing spending areas, the military budget is the most obvious pot to raid. The military budget now amounts to about $600 billion, of which Iraq alone accounts for $150 billion. Ending the Iraq war and creating a peace dividend would be good politics, good economics, and good ethics. But it is not clear that it will be politically feasible under the Obama administration, especially as it appears committed to escalating military spending levels in Afghanistan and Pakistan.

Even if it were politically viable to capture a $150 billion peace dividend by ending the Iraq war, we cannot assume that all the newly available funds should be channeled into clean energy investments. Some significant share of any such funds would have to be devoted to financing universal national health insurance, education, poverty reduction, and non-energy- related infrastructure projects, including major upgrades of our stock of bridges and levees.

Private Funding

The idea of mobilizing private credit markets to support social objectives is hardly original. As one major example, the very idea of middle- and working-class families owning their own homes became a reality only during the New Deal, after the U.S. government created a highly subsidized and regulated market for individual-family mortgages. As with the old housing finance system, a combination of regulations and subsidies -- sticks and carrots -- can provide a major source of funding to finance the clean energy transition. The stick would be asset-based reserve requirements, while loan guarantees would be the carrot. How would they operate in tandem?

      • Asset-based reserve requirements. These are regulations that require financial institutions to maintain a supply of cash as a reserve fund in proportion to other assets they hold in their portfolios. Such requirements can serve both to discourage financial market investors from holding an excessive amount of high-risk speculative assets, and as a cash cushion for the investors to draw upon when market downturns occur. The same policy instrument can also be used to push financial institutions to channel credit to projects that advance social welfare, such as those promoting green investments. Policymakers could stipulate that, say, at least 5 percent of financial institutions’ loan portfolios should be channeled to green investment projects. If the financial institutions fail to reach this 5 percent quota of loans for green investments, they would then be required to hold this same amount of their total assets in cash.

      As of 2007, total borrowing by U.S. households and businesses was approximately $2 trillion. This means that, if 5 percent of total borrowing were designated for green investments, that would amount to $100 billion a year -- an amount covering about two-thirds of the $150 billion annual green investment program.

      • Loan guarantees. The purpose of offering loan guarantees would be to significantly lower the risks of borrowing for green investment projects. This would then also significantly lower the interest rates that borrowers would have to pay when they seek funds to finance green investments. The U.S. government is already committed to offering $10 billion in loan guarantees for clean energy investments. Let’s assume that the full $100 billion of green investment loans stipulated by the asset reserve requirements also operated under the loan guarantee system.

      Let’s now also allow that the level of government guarantee is 75 percent of the total principal on these loans. Note, crucially, that under such an arrangement, private lenders would still face significant risk -- i.e., on 25 percent of the credit they had extended -- and would therefore have to evaluate investment proposals based on their potential for profitability.

      How much would this loan guarantee program cost the government? As with any other insurance policy, the government’s costs would be zero as long as borrowers do not default on their guaranteed loans. But of course some borrowers will default; the key question is how many. If we assume a default rate of 4 percent -- roughly equal to the rate of the government’s existing loan guarantee programs -- the total payouts that the government would have to make would amount to about $3 billion per year. This is less than 1 percent of total federal spending.

How it Hangs Together

Overall, we can roughly envision the financial requirements for the epoch-making project before us, of building a clean energy economy, and generating millions of good jobs in the process. Thinking of this as an annual investment project of about $150 billion, a feasible financing breakdown would be about $50 billion coming out of public funds, and the other $100 billion coming from private investments. The $100 billion in heavily regulated and subsidized private lending would also represent one important step toward transforming our financial system -- to raise the level of support for productive investment in the U.S., and to move Wall Street away from the casino logic that has been dominant for a generation. By itself, a subsidized and regulated private green investment segment of the U.S. financial market, operating at a level of about $100 billion per year, will represent only a modest step toward stabilizing the overall $2 trillion U.S. credit market, to say nothing of the additional sectors of the financial markets engaged in trading stocks, bonds, and derivative instruments.

Nevertheless, establishing a well-functioning green investment sector can serve as both a reminder and an example: it will remind us of the positive investment opportunities being lost by allowing financial markets to operate without significant regulations; and as an example of the broader approach needed to restore the principle that the capital development of the U.S. economy can no longer be guided by the logic of the casino.

© 2009 New Labor Forum All rights reserved.
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