Alternatives to capitalism


by Gregory Albo

It is said so frequently now that socialism is dead that even socialists no longer notice.  This view is based, in good part, on the end of the political formations that came to represent socialism through the twentieth century (tiny Cuba notwithstanding).  The statist command economies of Eastern Europe, the diverse state-led national liberation projects of the South, and the social democratic welfare statism of Western capitalism have all fallen victim either to internal collapse or external de-stabilization.  The old joke of the Soviet leadership that the central question facing the US was the prospects for capitalism in one country leaves a most sour taste today.  In making the transition from laudable ideas to sustainable human practices socialism has failed.  All reform projects have now to work within rather than against capitalist markets.  Or so have lectured innumerable compromisers and academic careerists making their peace with capitalism over the last decade.  As if socialism could be equated with a state-directed economy achieved as a timeless system or set of reforms once and perfected for good.

Socialism’s passing is due also, it is said, to the resiliency and dynamism of capitalism as it spreads its tentacles around the world to form a global marketplace.  This view has been voiced by neoliberal periodicals like The Economist and The Globe and Mail, who have breathlessly  written of the years after 1989 as if some new belle epoque of stability and advancing incomes had finally arrived.  It is this same kind of hubris which greeted Paul Martin’s most recent Budget in Canada, although it too continues the cycle of cutbacks and austerity that Canadians have heard announced on Budget Day for two decades now.  Others have been less wistful and simply have invoked the implausibility of adopting any anti-market redistributional policies that are inconsistent with the overwhelming and irreversible processes of globalization.  Political realism must begin from acceptance of the changes demanded by the cyber-capitalism of the late twentieth century that has made the old ways of doing things obsolete.  Still others, particularly  social democratic leaders and Keynesian economists, have been engaged in a fundamental re-assessment of capitalist market processes as more efficient in meeting human needs than previously allowed.  In this case, the challenge for reformers is posed not as how to control the market, but simply of how best to secure the ‘extra-market’ institutions at the international level necessary to provide polices for economic co-ordination previously accomplished by national governments.  Egalitarian policy measures are primarily about, in this view, widening the stakes for employees in capitalist enterprises through stock ownership plans or courses in entrepreneurship for the unemployed.  In such a stakeholder’s capitalism everyone gets to reap the benefits of capitalist competition.  As if at the very moment that so many are recording such indiscriminate confidence in the market, capitalism was not experiencing record volumes of global unemployment, abject immiserization for the most vulnerable from Africa to the streets of downtown Toronto and pervasive income polarization.

What is in question, then, from these two arguments are the central claims that socialists, both within the Marxian and Fabian traditions, have historically held.  In the first instance, that capitalism as a specific system of political power and production produces massive social inequalities and economic instabilities as a matter of course.  Reforms to the market can modify but not fundamentally alleviate these unjust outcomes.  In the second, that socialism as a set of economic and social principles, working through democratized political agencies and institutions, provides a means to overcome the inequities and obstacles engendered by capitalism.

Moreover, in the longer term, that socialism means a feasible alternate social order where production for need governs over production of profit and where new possibilities for human freedom and co-operation can be explored.

It is the lack of confidence in these two claims that is the prevailing mood on the Left today and so at odds with the feverish certainty of the market evangelists in favour of globalization.  Even the best people on the Left, many who had lived through the traumas of the Great Depression and the Cold War or who had cut their political teeth in most difficult circumstances in Third World solidarity struggles or in building the women’s movement, speak only of  ‘weathering the storm’ or ‘reconstructing the foundations’.  Very few of us still actively propose ways forward: the future is now the terrain of an increasingly hard and selfish Right.  The inevitability of socialism that once was a central pulse beating through the Left’s politics has been displaced by the inevitability of the global marketplace now trumpeted by the Right.  The clash of these discordant sentiments is what lay behind the furor generated by Francis Fukuyama’s provocative comment that history had ended and that liberal capitalism was the final form of human government. It is this thinking that must be questioned and, finally, rejected for a Left of possible futures and not just a Left defensively warning of present dangers.


World Market Imbalances 

 Let’s take up the first and most serious challenge: the world market as a sphere of opportunities and not injustices.  It should hardly be contestable that the world market is beset by profound structural imbalances.  The ILO’s recent World Employment Outlook, for example, records that global unemployment is rising virtually everywhere.  In Europe and Canada double-digit unemployment is the norm and in all accounts expected to climb.  Economic openness as measured by trade shares, foreign direct investment flows and international banking deposits have all grown tremendously.  These flows have constrained economic policy options.  The magnitude of the imbalances can, perhaps, be seen best in the rise of speculative capital movements relative to real trade flows.  The IMF estimates that foreign exchange transactions are $1 trillion daily while trade volumes are only at $3.5 trillion yearly.  This discrepancy reflects an astronomical amount of speculation in global currency, bond and equity markets.  It is an astonishing commentary on the depraved depths that neoliberal economics and contemporary governments have sunk that such flows are not taken as offensive to sound economic policy.  Rather they are defended as necessary hedges against market risks, and demands for better housing or daycare are dismissed as the offensive claims of special interests.

Yet a further expansion of the world market through free trade is constantly, and exclusively, invoked as a solution to these imbalances.  This strategy is conceptually flawed and a serious misreading of recent economic history. 

Free trade theorists posit that all trading partners can gain from international specialization as fully employed resources are reshuffled to more productive uses and prices adjust to keep everything in balance.  But even apart from the widespread existence of unemployment that discredits the case from the outset, this is not how international competition and trade works in the real world.  Balance of payments equilibrium crucially depends upon relative unit labour costs between countries at the prevailing exchange rate.  It is a measure of how cheaply a country can export goods.  Any country that can combine new techniques with relatively cheap labour will gain competitive advantage and a claim on the world’ new value-added.   The authorities and capitalists of any particular nation will obviously prefer this situation and thus to run a surplus on the current account of the balance of payments.  This surplus will mean an accrual of net assets from the rest of the world.  But it is elemental that all countries cannot run a surplus.  Some countries will have less competitive capacity and be in deficit on their trade.  Trade can then turn nasty: the differential competitive capacities can become cumulative and thus destabilizing.

Trade deficits require financing in the hope that borrowing to get in balance will later generate the surpluses to pay off loans.  To do so requires, of course, that investments build up competitive capacity appropriately (and not be used to finance consumption).  More importantly, surplus countries must later go into deficit so that foreign exchange may be earned for repayment of loans and interest (that in the meantime become another load on the payments balance).  This typically depends in deficit countries upon some mixture of devaluation and deflation in an attempt to switch and reduce demands for imports while increasing exports.  These policies, however, raise their own problems.  Deflation reduces demand and creates unemployment, while devaluation destabilizes investment although industrial capacity must be developed to meet import substitution and export demands.  So deficit countries like Britain can suffer economic decline, while others like Japan continue to build surpluses.  The more widespread are payments imbalances between countries, the less likely the adjustment process can work for any single country without damaging its economy. There is no investment and export boom to be had.  The repeated failures of structural adjustment polices for developing countries have all too candidly shown this.  The payments problem simply festers.  Short-term speculation against the currency is possible at any time.  Yet the ransom paid to rentier interests financing deficits and debts is necessary to keep the whole unsustainable credit structure afloat.  So globalization comes to be legitimated not on the basis of actual remedies, but in the religious faith that capital and exchange markets are always efficient and in the long-run it will all work out.  And even the Mexican currency crisis, with its enormous toll of human misery, is simply dismissed as a case where exchange markets were too slow to respond and then too abrupt in bringing about the necessary adjustment to trade problems.

These kinds of structural imbalances have characterized capitalism as a whole for some time now.  In the postwar period, the US supplied dollar liquidity to the world through capital exports to finance trade imbalances.  This continued until the dollar became unsustainable as the hub currency and Bretton Woods collapsed in the early 1970s.  Floating government bonds to keep trade imbalances liquid has been critical ever since: initially to recycle petro-dollars, subsequently to prop up Third world deficits, and now also to cover the increasing interest flows from the debt of Western governments themselves.  Since the late 1970s the IMF and the World Bank have promoted financial liberalisation as the mechanism to finance trade adjustments and to use foreign exchange markets to impose market imperatives on national economies.  Yet trade imbalances and debt loads have not cleared anywhere.  And many countries, especially in Africa, have pushed the effort to meet external obligations and to increase exports to desperate levels of poverty and environmental destruction.

The flexible exchange rate regime and capital mobility that was said by neoliberals in the 1970s to expand national policy autonomy and the means to settle trade imbalances has proven to be a neoliberal nightmare.  The Mexican peso crisis is one example, but the bond market swings of 1993-94 and the currency troubles of Spain, Italy and a host of Third World states are also telling.  The muddle of floating rates is perhaps most spectacularly illustrated by the US.  In the 1980s, trade deficits soared to unprecedented heights, yet the dollar appreciated by some 40 per cent.  The subsequent spectacular dollar depreciation has not left American trade problems any closer to being resolved.  The lesson that flexible rates had the capacity to destabilize national economies to no clear endpoint moved the world economy to more managed rates, as with the Plaza and Louvre accords of the 1980s.  Since then the combined neoliberal fears of inflation and external instability have imposed a quasi-fixed exchange rate system.  Hence adjustment of trade imbalances has increasingly had to fall entirely on what the IMF calls expenditure reductions and more flexible labour markets–austerity and unemployment.  This is especially so for the US where rapid currency devaluation (or even the US bringing its trade balance under control) would throw the world economy into enormous turmoil.  The trade imbalances, however, remain and it is becoming quite unclear even to those favourable to this approach how they can be corrected and financial obligations be met without politically unpalatable measures.  A market-equilibrating set of exchange rates that will induce full employment and restore trade balances across the world economy is non-existent.  Neoliberal policies of free trade and social democratic policies of national competitiveness through high-technology have everyone trying to export more.  It is obvious that these measures will compound and not resolve the imbalances and injustices at the centre of the world economy.


Alternatives to Capitalism

The second challenge to socialism is, of course, that of construction: the movement from voicing opposition to the formation of alternate projects.  Here it is necessary to begin by taking a register of what globalization is and what a socialist alternative must stand for.  At the most general level, globalization is the expansion through space of market exchanges in the form of trade and capital mobility.  In other words, the specific places where production occurs, whether this is Winnipeg or Warsaw, are inter-linked through flows of goods and money.  As globalization proceeds, the market becomes increasingly universal as an economic regulator between and within national and local societies.  This is because trade leads to more intense price competition for particular goods, even though they may be produced in distinct social and technological conditions.  Currency convertibility, moreover, tends to impose the same competitive imperatives across society as a whole as money can seek out the highest return in whatever country and whatever sector it wants.  The whole world is compelled to keep up with the technological advances being made in Silicon Valley and Tokyo and the low wages of Bangkok and the Maquiladoras.  Globalization keeps raising the pole of competitiveness so that countries must continually seek to improve technological capacity and to rationalize labour and social costs just to stay in the same spot.  But even a newly industrializing country like South Korea, with an authoritarian political tradition, large labour supplies and lax ecological standards, finds it difficult to keep up without creating severe social tensions.

The more universal the market becomes as an economic regulator of societies, therefore, the more narrow the scope of democracy.  Democracy becomes confined to purely formal rights, certain civil rights and the right to periodically elect rulers to preside in Parliaments of less and less substantive importance.  Thus it is not altogether surprising that free trade agreements such as NAFTA or proposals of economic union like Maastricht restrict what democratic institutions can undertake at the same time as they create common market standards and entrench corporate property rights.  The thoroughly undemocratic World Trade Organization (WTO) in both its specific articles of agreement and in its practical operations is another example of intrusion upon the sovereignty of national parliaments in favour of a universal market.  This could vividly be seen in Canadian protection of cultural industries by prohibitions on certain advertising expenditures, something seemingly quite peripheral to trade policy.  A few points should be clarified as political misconceptions have abounded here.  The limitations on sovereignty by supernational authorities and agreements have not simply transpired against the Canadian state.  Rather it has occurred through its very agency: Canada and its ruling class were and remain a key force behind the WTO and the universalization of market property rights against democracy.  Remedying the democratic deficits of international institutions would hardly solve the problem, as so many naive reformers have pleaded.  This would only provide greater political legitimacy to the universalization of market imperatives against the choices that democratic collectivities at the national and local might make.  Greater democratic accountability at the international level is necessary, but solves nothing.

Left alternatives to globalization are not, then, so much a choice between international or national strategies, or between reflation and community economic development.  They are more fundamentally a question of democracy as both are a particular form of political organization and as an alternative to universal market imperatives as a regulator of economic and social activities. It is about our democratic capacity to deliberate collectively as social equals about the type of society we want and the solidaristic–rather than competitive–forms international relations might take. It is about our capacities to develop alternate development models consistent with sustaining national and local ecologies and to develop self-management in workplaces.  It is in this quite essential sense that capitalism remains an enormous obstacle and socialism an imperative to sustainable human and ecological development.

The political project of globalization has foremost been about expanding the scale of market activities through trade and privatization while reducing the scale of democracy through constitutionalizing neoliberalism in undemocratic international institutions and trade agreements. The Left’s alternate project must necessarily address the scale and spaces of economic activity and democracy.  The challenge of construction of an alternative is, in a sense, one of inverting the dominant logic: of expanding the scale of democracy while reducing the scale of market activities.

The desire to expand the scale of democracy is, of course, a long-time vision of the Left.  It certainly entails democratizing the governance and policy structures of international agencies.  But to do what is the central issue.  The IMF, the World Bank and the WTO that comprise the Washington Consensus in favour of neoliberalism and free trade impose exactly the opposite of what democracy and alternative development requires.  They compel the same model of export-oriented market-led development everywhere.  A solidaristic international economic policy would, in contrast, maximize the capacity of different democratic collectivities to choose diverse development paths as long as they do not impose externalities such as trade imbalances and environmental damage on others.

Such democratized agencies would be mandated to co-ordinate and plan trade, provide resources to raise output levels in less developed areas, ensure symmetrical adjustment of  balance of payments, enforce ecological and labour standards and, most importantly, assist in the control of the movement of capital and currencies.  This is only a beginning list: questions of nuclear proliferation and weapons production, cultural and communications monopolies, the allocation of responsibility for carbon emissions damaging the ozone layer and the rights of indigenous peoples could all be added.  But thinking through egalitarian solutions to these issues all point in the direction of international measures that constrain the market, maximize democratic input and reinforce diverse national and local development models.  These types of structures at the international level are crucial in that the viability of a Left project will pivot around a radical extension of popular controls.  International agencies have too often served as a support for capitalists fleeing democratic governments contesting the property rights of capitalists.

Expanding the scale of democracy also implies measures within states.  Any substantive measure of democracy entails some collective capacity to control the economic surplus produced and direct it into usages determined by democratic debate.  In other words, market regulation of production and distribution is substituted by democratic and egalitarian regulation.  Democratic economic planning of priorities and democratic administration of state polices and plans are thus essential. Central economic authorities that determine broad priorities, redistribute resources and manage international trade and finance are as crucial as they ever have been to advance egalitarian projects against its enemies and the corrosive impacts of the market.  But there is no singular notion of the plan produced in remote offices by experts and computers.  There is a need to have several planning bodies forwarding costed proposals for debate and public input.  This recognizes the complexity and diversity of social life and local spaces rather than its simplicity and uniformity.  Implementation of priorities also suggests self-management in workplaces and communities.  This is where polices must actually be implemented and used and hence active support and input most required.

At a general level reducing the scale of production calls for more firmly embedding production and finance in national and local spaces.  This is why capital controls, planned trade and new relations of co-operation internationally are so pressing.  But even if trade remains important, and the external sector always necessary to account for, reducing scale implies more inward-oriented economic strategies.  Socialists have insisted that production should above all provide basic needs (although what this constitutes varies as productive powers increase) and expand democratic capacities of self-management.  Today inward strategies are also a necessary ecological imperative: to move agricultural production away from mono-culture crops toward bio-diversity; to reduce the energy usage and carbon emission consequences of the geographical scale of trade; and to adopt labour intensive techniques when capital intensive ones like clear-cut foresting or factory fish trawlers have such colossal environmental impacts.  Reducing the scale of production is a guiding principle to placing considerations of quality, of social need, of ecology, of democracy, above the market emphasis on efficiency in terms of quantity and size.  It is the latter that produces the obscenities of mono-culture export crops booming while famine proliferates and dietary quality deteriorates, and advertising budgets for the Internet skyrocketing at the same time art galleries and libraries close.

If the notion of reducing the scale of production conveys a socialist project for responsible production, it also requires a development model that emphasizes coherence between macroeconomic balance and microeconomic polices.  Budgetary and monetary policies, for example, need also to emphasize redistribution and quality production rather than simply economic growth to solve unemployment problems.  Tax and welfare polices also need to be based on a model that stresses redistribution, collective service provision, ecological sustainability and expansion of democratic capacities.  There are literally hundreds of areas where unmet needs–housing, daycare spaces, cultural diversity–can be matched with unused resources and egalitarian initiatives.

Finally, a socialist strategy of re-orienting resources implies a quite serious re-conceptualization of work.  The emphasis of Left economic policy for too long has been employment expansion through faster economic growth at whatever the ecological and human costs.  Work was work.  This approach today will neither solve the crisis of unemployment nor be ecologically sound.  Solidaristic work polices that radically redistribute work through work-time reduction, overtime caps, sabbatical and parental leaves must be vigorously pursued.  Collective bargaining needs to put an annual work-time reduction factor alongside an annual wage improvement factor for sharing-out of productivity gains.  As the Canadian Auto Workers have argued and pursued, work-time reduction can also be put toward education and skills that expand the capacity for self-management at work and leadership in the community.  These, then, are the challenges for Left economic policy, but also its amazing richness of ideas beyond the imperatives of a world market.


A Left of Possibilities

That this alternate project is at odds with the present configuration of the world economy hardly needs stating.  For the pressing problem is precisely the imbalances and inequalities being created by the imperatives of a capitalist market being universalized at a global level.  With all countries throwing their political and productive energies into exporting more through policies for national competitiveness–Team Canada going up against Team Germany in trying to crack Team Korea’s market–somebody has to lose.  It would be nice if free trade worked-out with everyone being a winner from increasing market exchanges, as the timeless and abstract models of the neoliberal economics textbooks conclude.  But history is not a hypothetical model and capitalism is not a social system of equal opportunities.  The last period when the world’s major powers pursued the utopia of an unregulated global marketplace, with similar levels of economic openness to those of today, eventually ended in the currency instabilities and beggar-thy-neighbour trade wars and depression of the 1930s.  Trade agreements like NAFTA and the WTO block that kind of tariff spiral today; and capital mobility compels governments to maintain exchange rates at all costs for fear of the consequences of capital flight.  The competitive pressures from unresolved economic imbalances are, however, only displaced elsewhere.  Trade wars now work through the beggar-thy-working-class policies of competitive austerity of lower real wages and government cutbacks.  This is a world where the obstacles capitalism poses to social justice loom very large indeed.

Millions of people still vote for socialism in opposition to these economic processes, or at least for the political parties who still carry the banner of socialism if no longer its substance.  And many, perhaps equal in number, work or vote for movements that also are against the dominant economic and ecological order.  This is so even in Canada.  Yet the unease about the future, which socialists once looked forward to so confidently, pervades even the most resolute.  These hesitations about socialism, in the wake of so many disappointments and the hard-learned lessons of the complexity of the undertaking, are quite understandable.  It is particularly so when confronting the set of forces presently marshaled in favour of the universalization of the market.  But we should neither confuse these challenges, nor the hesitations, with the reversal of the claims for the socialist case.  Or, indeed, the necessity of a vision of a radically different social order, whose outlines can be discerned within the concrete struggles for alternate policies to the injustices of liberal capitalism today.  Recreating this sense of possibility, of ideas and movements, is the greatest resource for the many democratic socialisms of tomorrow.


[Thank you Greg for this contrubution]

The writer teaches political economy at York University, Canada, and is editor of The Socialist Register and supports the work of the Socialist Project (