Boris Anisimov: Leftist Economic Essays

The blog provides a left-wing non-partisan perspective on socio-economic issues in Russia and throughout the world. The focus is on qualitative development of national economic systems and ensuring flexibility in economic policies to meet the challenges of the 21st century. Email: leftistobserver@gmail.com

MITT ROMNEY: A REMEDY OR A DIAGNOSIS?

Who is this Mr. Romney: a new remedy for the old ailment or a new symptom of the old diagnosis?

In November 2012 we are anticipating the sequel to the much-talked-about drama serial known as the US elections. The air is going to be filled with celebration:  flags, ribbons, ardent slogans from the pulpits and reciprocal exclamations from the crowd. Having completed the regular public debate ritual, US voters are going to line up in front of ballot boxes in order to entrust the urns with their most precious possession, namely their hopes for a brighter future. And judging by what is now happening to the American middle class, they hardly have anything else to entrust them with [1]. The danger of the middle class’ extinction is being seriously discussed in the US. One can think of some old truism about living in debt being fun until it is time to pay up. Households, corporations, banks, governments are all stepping up their debts while the resentment of the masses is growing bitter upon a realization at the outbreak of the on-going crisis that if there is a binge, there is going to be a hangover.

In times like this, the political farce gets unfurled in the most ruthless way. Any means which serves the purpose gets put to use. As highly-paid professional windbags publicly compete in slinging mud at one another, the voters, disunited into small interest groups, get distracted from the important matters and rail furiously for farfetched reasons.  

I would probably say that the novelty of the current political season in the US is Mitt Romney, a well-to-do Mormon with experience of a businessman and a governor. The American political machine has once again demonstrated to the whole world its ability to come up with unexpected arrangements. The winner of the previous season, the African American under the non-Anglo-Saxon name of Obama, is no longer a thrill. He already acquired the status of a political old-timer and managed to lose some of his appeal. Now the public is presented with a new office-running novelty – a Mormon millionaire.

It is not his millions that became the talk of the town (well-to-do candidates for high political positions are common in the US), but his religion. Romney’s opponents did not miss the opportunity to ridicule his faith. However, any sound-minded individual understands that religion does not occupy the number-one position in a politician’s list of priorities – a politician is not paid for religious views but for protecting somebody’s interests.  

It is also obvious that it is not theological preferences that will decide the outcome of the ultimate battle between Romney and Obama for the top position, but the future of the US economy. In crisis, this topic gets repeated more often thus implying that the number of economic promises pronounced from the lofty pulpits is going to increase. It would be interesting to count how many times during the debates each of the candidates will resort to some variation on the unofficial slogan of Bill Clinton’s campaign in 1992 – “It is the economy, stupid». [2]

Any unusual phenomenon, which disrupts the conventional order of things, is either a precursor of a change or an inertial consequence of existing problems. I am wondering what Mitt Romney is all about from this standpoint. Who is this Mr. Romney: a new remedy for the old ailment or a new symptom of the old diagnosis?

Mr. Romney’s official site will dazzle you with promises [3], the main one being a sharp turn away from the «current course», by which policies of the present occupant of the White House are implied. Romney recognizes the need to boost employment, and puts this issue as his number-one priority in his economic policy.   

So what is he suggesting?

1.       Tax cuts;

2.       Further deregulation;

3.       Opening new external markets for US industries;

4.       Producing more domestic energy in order to cut costs;

5.       Greater “flexibility” of the labor market;

6.       Retraining workers;

7.       Government spending cuts.

Honestly, there is nothing new here – it is the “good” old neoliberalism, which is called neoconservatism in the US. It is all in line with the western economics manuals, which Mr. Gaidar and his bunch used for reforming us in the early 1990’s. That same economic policy with certain alterations is preserved in Russia until this day. The local “Chicago boys” – the Russian pro-western neoliberal monetarists, whose notorious heritage we can still see today – had quite a fancy for such a policy.

Interestingly enough, Romney and the Russian neoliberal reformers have the same flaws in their economic reasoning. Allowances must be obviously made to the United States’ position as the global hegemon. There is a growing suspicion that the program that Romney revealed only constitutes a portion of the real agenda because a set of mutually contradicting items in it make it unfeasible in its current form. What are the contradictions?

Taxes vs. Budget Deficits. Tax cuts for the sake of economic growth and lower unemployment make sense, but budget deficits due to tax cuts do not. Over the last decades, the US budget has been passed with a constant deficit, which gets monetized by the Fed. Many economists attribute the growing public debt in the US to the lack of funds due to tax cuts. The debt increment started accelerating astronomically in the early 1980’s, precisely when neoliberalism as politico-economic project came into existence. That very period was also marked by the advent of Republican Ronald Reagan at the White House where he convincingly played the role of a US president as he advocated tax cuts for the rich. And reaganomics – the economic constituent of the neoliberal theory – received this informal name after him.

In other words, upon taking office, Romney will be able to cut taxes only by increasing public debt, which contradicts his commitment to cut the latter and teach America to live within their means.

Austerity vs. Growth. Budget deficits can be lowered by cutting government spending. Romney’s reasoning that supports this initiative is based on the well-known maxim that one must live within one’s means. This very principle is noble and proper, but the way the Republicans are going to implement it does raise questions. Thus, Romney insists on cutting non-security spending while it is security spending, which takes up the largest portion of the budgetary expenditures. The second largest is the servicing of the government debt. In the US federal budget for the year 2012, the security expenditures planned at $881 billion make up 23.82% of the total expenditures, the deficit working out at $1,090 billion. We can hardly expect Romney to cut security spending at least because his promises to maintain the US geopolitical standing and thereby show the world an American equivalent of Kuzma's mother are going to require significant financing. On the other hand, it is possible to cut the expenditures on the police, firemen and teachers as well as social programs like the recently adopted law on the mandatory medical insurance [4].

I agree that government spending does not automatically lead to economic growth. But the problem is much more profound than what we hear about it from the American establishment in general and Mr. Romney in particular. It is not a matter of whether to run into more debt or not – it is a matter of whether households’ aggregate solvent demand is sufficient to finance a way out of the economic impasse or else the government will have to make up for the deficiency. In this case, there are no other options but three: to raise taxes for the well-off, run into more debt or “print” more money. The last option does not only threaten to push up inflation but also increases the budgetary debt load since the Fed in actual fact issues money by monetizing the public debt. If national governments could do it without the involvement of their central banks, the currency issue would be quite a stimulus for the internal demand, but it does not mitigate the danger of inflation. So whether Romney likes it or not, the US public debt is going to grow bigger.

Internal growth vs. geopolitical expansion. In words, Romney believes that internal resources will make economic growth possible. In accordance with the neoliberal doctrine, the main task is to restore the functioning of business. It is believed that once supply is restored, demand will follow suit automatically. Encouraged by another tax cut, entrepreneurs should allegedly start hiring, and the country’s economic motor should kick start itself – this is the so-called “supply-side economics”, which currently holds sway over economists’ minds. But there is an alternative approach. The “demand-side economics”, represented by various schools, underlines the impossibility to boost the economy by stimulating supply unless the solvent demand is ready to foot the bill. Economists who share this viewpoint are speaking of a widening gap in the US between the growth of average wages and the growth of productivity, which has become evident since the mid-1970’s [5]. The old Karl Marx called this phenomenon a crisis of over-production, the essence of which is quite simple – wages grow more slowly than productivity and cannot pay for the ever-increasing supply of goods and services [6].  And the US households’ growing debt load only confirms this concept. As a result, we see sagging sales, falling revenues, lay-offs, bad debts, banks refusing to lend, and finally a depression.

One can draw the same conclusion about the falling solvent demand in the US economy by analyzing the statistics of income distribution among the population.

Income Distribution in the US from 1982 to 2006 [7]

Year
Top 1 percent
Next 19 percent
Bottom 80 percent
1982
12.8%
39.1%
48.1%
1988
16.6%
38.9%
44.5%
1991
15.7%
40.7%
43.7%
1994
14.4%
40.8%
44.9%
1997
16.6%
39.6%
43.8%
2000
20.0%
38.7%
41.4%
2003
17.0%
40.8%
42.2%
2006
21.3%
40.1%
38.6%



Interestingly, the lowest rates for the majority of the population occurred at the beginning of the Great Depression in the late 1920’s and before the on-going crisis in the early 2000’s. And it is not a coincidence. The recent drop started in the early 1980’s upon the emergence of neoliberalism and is still continuing.

Can we expect that American debt-ridden consumers will start spending their evaporating incomes with renewed energy in order to bring up sales to the pre-crisis levels? This is at least naïve. According to economist Mikhail Khazin, the US household expenditures over the last 30 years have exceeded household incomes by 20-25% [8]. And Romney also seems skeptical about the internal economic growth in the near future since expansion by American industries into foreign markets has been put on his economic agenda. In other words, does that imply that, should internal resources turn out to be insufficient for economic growth, we are going to see new geopolitical crusades to expand markets and boost sales? Do the American elite realize that otherwise it will be difficult to restore internal consumption pre-crisis levels? I think they do.

Reindustialization vs. outsourcing. As Boris Kagarlitsky writes in his book The Revolt of the Middle Class, the very notion of a middle class appeared in the middle of the 20th century as a result of the implementation of Keynesian prescriptions in the economic policies of the West. By redistributing a portion of incomes in the economy for the middle class’ benefit, the elite managed to ensure high consumption levels for various goods and services. The western ideologists did not miss the opportunity to demonstrate this achievement as evidence that the West was at a more advanced stage of socio-economic development in comparison with the Soviet “socialism” while, in essence, it was a left-center compromise caused by the fear of popular discontent following the Great Depression.

When the elite’s fears finally subsided, a gradual right turn started bringing about falling incomes and growing inequality among the American common folk. The «fattening» of the middle class was no longer in fashion. In order to cut costs, corporations began relocating production facilities to countries with low wages. This resulted in the United States’ love and hate relationship with China where millions of workers were ready to toil for peanuts while China’s internal solvent demand remained immensely low.   

Now that the global demand is falling, China is trying to stimulate internal consumption, but this raises all production costs. So the US has already started talking about the production facilities moving back from China [9]. It is still too early to talk about the US reindustrialization. It is hard for me to imagine that the debt-ridden US middle class should consent to wages low enough to start attracting jobs in large numbers back from the third-world countries. Also, I cannot get rid of an impression that Romney’s initiatives to limit the clout of trade unions and improve workers’ re-training programs are all aimed specifically at labor cost reduction. The labor market’s “flexibility” – which, in essence, simplifies the hiring and firing of employees – can lower job security, intensify competition among the workforce and bring down wages as a result.

I think turning the US back into a leading industrial superpower in the near future will be quite problematic since a massive industrialization will require a significant reduction of the working population’s living standards. Is the American public ready for such a turn of events? Will they be able to increase spending and pay off their loans as their liabilities continue to rise merely because of accrued interest?

All initiatives aimed at reducing the middle class’ income in the US economy are likely to raise questions from the international community. As you know, the demand in the US is the largest in the world and “feeds” corporations in a lot of countries. Neither China alone nor all the BRIC countries put together have so far been able to offer the globalized transnational world consumption levels comparable with those of the US. If global consumption does not rise to the pre-crisis levels soon and continue to grow further, the danger of major financial meltdowns is going to remain acute because the world still has enormous amounts of debt previously extended in hopes that global demand should continue to expand.

When demand declines, economics manuals turn into worthless paper waste. The neoliberal economics deals mostly with the expansion of supply and believes that demand expands automatically. Our government and corporate strategies, educational programs, politics and ideology are all based on this view of the world. And Romney is one of the best representatives of this system. So, is Romney a remedy or a diagnosis? Alas, only a diagnosis. He is too symptomatic of his epoch to symbolize any kind of renewal. All his convictions on economics and foreign policies were voiced before. Carbon copied from previous republican candidates’ programs, they sound more like populist chants than a real action plan. Romney is obviously trying to win the favor of the American conservatives. You can hear him talk about “the American dream that built America” and “the spirit of entrepreneurship inherent in the American nation”, but all his talk of self-sufficiency is coupled with geopolitical rhetoric. Romney does raise the issue of the US public debt, which is now approaching $16 trillion, but fails to bring up the issue of the growing household debt, which financed the growth of corporate incomes over the last decades.     

A politician who tells his or her voters that their incomes are going to decline does not stand a chance in politics. Instead, a politician must shine with optimism and make believe that he or she knows how to fix things. This is exactly Romney’s case. He is a slave to the American conservative ideology of success. In reality, he can offer even less than Obama, who is striving to pass some center-left initiatives. From the ideological stand point, Romney is hog-tied. The policies he was pursuing as Massachusetts governor were more socially oriented in comparison with what he is promising to implement if elected US president. He is now trying to prove his hawkishness, but is only turning the steadily impoverishing middle class away.   

Boris Anisimov

P.S. The original article in Russian can be found at http://www.odnako.org/blogs/show_19857/

CONTEMPORARY RUSSIA AS A PRO-WESTERN PROJECT



Our historical experience has obviously taught us nothing. It is striking that the Russian elite’s desire to continue copying the West is only increasing! It is obvious that the neo-liberal policy has failed miserably, not only in the peripheral countries, but also in countries that were set as an example to us for the last 20 years. The imminent bankruptcy of the western economies clearly underlines the ideological bankruptcy of modern capitalism. It is natural to expect that companies, experts, international institutions and public officials admitted to feed at the global financial "trough" will fall over themselves to defer the reckoning. It may be quite possible that the next bubble will convince speculators all over the world that the crisis is over, and they will run with increased zeal to invest their money in respective assets and their derivatives. Thus, the illusion of their effectiveness will be preserved.

The Russian compradore elite are not going to stand by idly. Interestingly, the neoliberal convictions persist in their circles despite the regular bouts of anti-western rhetoric from the top political leadership. Unfortunately, the philosophy of their economic policy remains unchanged. We are hearing about privatization and social spending cuts again, while the state continues with its previous policy of reduced involvement in education, healthcare, R&D, etc. The crisis revealed overkill of dogmas pertaining to an unregulated, chaotic capitalism in the minds of economic professors and their students, but this doctrinism has officially been left undisturbed.

In many respects, the Russian elite are undertaking to imitate the West even more energetically because their legitimacy derives from the West. In its current form, Russia is a pro-Western project. The political and business elites’ unwillingness to trouble themselves with Russia’s autonomous socio-economic development is due to their overwhelming fear of falling into disgrace with Western "partners". Is it possible to imagine a Russian oligarch, who voluntarily gave up the comforts of Parisian hotels and services of London banks, yacht voyages in the Mediterranean and vacations on the French Riviera? After all, it was the possibility of moving capital out of the country and living in clover on it without any worries about a place under the sun that looked so enticing to the Soviet apparatchiks in the late eighties. This determined the further development towards the looting of state-owned property, the rupture of economic ties, the re-orientation of the existing economic system to the global market forces beyond our control.

Again, the Russian elite are legitimate as far as the West considers them as such. Therefore, losing face before Western "partners" is more dangerous for the safety of their capital than losing face before their own people. All the declarations in Russia’s Constitution that "the only source of power in the Russian Federation shall be its multinational people" (see the Constitution of the Russian Federation, article 3, 1) are merely words. In fact, the source of power is transnational capital, which "exercise[s] its power" "through the organs of state power" among other methods (see the Constitution of the Russian Federation, article 3, 2).

I am convinced that the number one task for us is to define a new, more rational socio-economic policy. To my mind, the course we are pursuing is very irresponsible and dangerously short-sighted. Taking into account the objective conditions, in which we live in our country, I am inclined to believe that the solutions to the most critical problems can exclusively be found as part of the leftist-patriotic initiatives. Solutions have not yet been found, but it must be clear to us that, within the framework of the current neo-liberal paradigm of development, these solutions shall never be found at least because this paradigm spares no costs to preserve the status quo, hence fails to address systemic issues and is content with a superficial review of the problems. Without raising proper issues, one cannot find proper solutions.

СОВРЕМЕННАЯ РОССИЯ КАК ПРОЗАПАДНЫЙ ПРОЕКТ

Наш исторический опыт нас явно ничему не научил. Удивительная вещь – стремление нашей элиты продолжать копировать запад только усиливается! Очевидно, что неолиберальный курс провалился с треском не только в периферийных странах, но и в странах, которые ставились нам в пример последние 20 лет. Неминуемое банкротство западных экономик ясно подчёркивает идеологическое банкротство современного капитализма. Естественно ожидать, что компании, эксперты, международные институты и государственные чиновники, допущенные до мировой финансовой «кормушки», будут лезть из кожи вон, чтобы отложить необходимость платить по счетам. Вполне может быть, что какой-нибудь очередной пузырь убедит спекулянтов по всему миру в окончании кризиса, и они с усиленным рвением побегут вкладывать свои деньги в соответствующие активы и производные инструменты. Тем самым, иллюзия их эффективности сохранится.

Наша российская компрадорская элита не будет стоять в стороне. Интересно, что в их кругах сохраняются неолиберальные взгляды вопреки регулярным приступам антизападной риторики у высшего политического руководства страны. К сожалению, философия экономической политики остаётся неизменной. Мы опять слышим о приватизации и урезании социальных расходов, а государство продолжает ранее взятый курс на снижение своего участия в образовании, здравоохранении, развитии науки и т.д. Кризис обнажил засилье аксиом нерегулируемого, хаотичного капитализма в головах профессоров-экономистов и их студентов. Но это доктринёрство на официальном уровне осталось непотревоженным.

Элита всё энергичнее пытается подражать западу во многом потому, что черпает свою легитимность именно там. Россия, в её нынешней форме, - это прозападный проект. Потому-то политическая и деловая элиты не желают заниматься вопросами автономного социально-экономического развития нашей страны, что как огня боятся немилости со стороны западных «партнёров». Возможно ли представить себе российского олигарха, который добровольно отказался бы от комфорта парижских отелей и услуг лондонских банков, прогулок на яхтах в Средиземном море и отпусков на французской Ривьере? Ведь, именно возможность вывести капиталы и жить на них припеваючи, не опасаясь за своё место под солнцем, прельщала позднесоветскую номенклатуру. Это и определило направление последующего движения в сторону разграбления государственной собственности, разрыва хозяйственных связей, переориентировки существовавшей экономической системы на конъюнктуру неподконтрольных нам глобальных рынков.

Повторюсь, что российская элита легитимна настолько, насколько запад считает её таковой. А значит, для сохранности их капиталов потерять лицо опаснее перед западными «партнёрами», чем перед собственным народом. Все слова в нашей конституции о том, что «единственным источником власти в Российской Федерации является её многонациональный народ» (Конституция РФ, ст. 3, п. 1), остаются всего лишь словами. На деле, источником власти является транснациональный капитал, который «осуществляет свою власть» в том числе и «через органы государственной власти» (Конституция РФ, ст. 3, п. 2).

Убеждён, что задачей №1 для нас является определение нового, более разумного социально-экономического курса. Нынешний курс мне кажется крайне безответственным и преступно недальновидным. Учитывая объективные условия, в которых мы проживаем в нашей стране, я склонен полагать, что ответы на наболевшие вопросы могут быть найдены исключительно в рамках лево-патриотических инициативи. Ответы ещё не найдены. Но нужно понимать, что в рамках существующей неолиберальной парадигмы развития, эти ответы не будут найдены никогда хотя бы потому, что она любой ценой стремится поддержать статус кво, а значит не задаётся системными вопросами, довольствуясь лишь поверхностным изучением проблем. Не задав правильного вопроса, получить правильный ответ невозможно .

Борис Анисимов

CAPITALISM STRIVES FOR ETERNAL EXISTENCE

That’s why the emergence of an adequate crisis theory in the developed world is not possible even hypothetically.

Over the weekend, the lectures in “neoconomics” have been held for the first time over the last two years. During the lectures, the audience asked various questions such as why did the new interpretation of macroeconomics and, respectively, the crisis theory appear in Russia rather than the US, the UK, Germany or anywhere else. We have answered that question in one way or another, but it makes sense to address it one more time.

So let me remind you that the respective discipline – since its emergence in the late 18th century – has been called “political economy” for quite a long time. For one hundred years, its authors recognized that they were dealing with a social science, which is fundamentally connected with the interests of a large group of people who paid a close attention to its development so that it does not become adverse to their interests. It is hard to imagine a similar situation in mathematics. It did exist in physics, but it was of a particular nature and had a positive impact on the science itself – the enormous investments in science when nuclear arms were being developed.

The problems obviously start with Marx, who was the first one who proposed a thesis that the duration of capitalism was in essence limited, and who substantiated the mechanism of class struggle. Few people would be interested in such a scientific discovery besides experts, but the creation of communist parties and the emergence of the USSR did awfully frighten the capitalist world. So it began a campaign for a fundamental change in all social sciences with a purpose of finding (or fabricating) evidence of capitalism’s eternal existence. This effort resulted in the emergence of what we now call “economics”, while “political economy” was expelled from the academic curricula so that there would be no remembrance of it. By the way, such a transition took only two decades in Russia – do you happen to know any university or college that teaches political economy these days?

As part of the above mentioned effort, various economic and sociologist schools have come into existence (e.g. Monetarism and Keynesianism), and we now have the privilege of witnessing their combat with one another. But these schools are still based on the same common language developed over the last 100 years. It does not envisage any concepts of Marxism or political economy in general, which are capable of grasping the fact that the paradigm of technological progress can be limited in time.

It must be noted that the whole framework of the main economic school of our time, namely monetarism, was to a large extent created to address a particular issue. In the 1970’s, when the issue of money became the only way out of the economic calamity, there was a need to justify the precedence of the financial elite, which forms a separate group among the modern-day capitalist elite. It was their interests that the monetarist theory was developed to protect. After the implementation of Reaganomics focused on the credit-driven boosting of consumer demand, principles of Monetarism began to spread across the world.

And this is the root of problems we are witnessing now. At the same time, we realize that the objective issue which underlies them is the fact that the economic model based on the paradigm of technological progress has come to its end. But the common language of Western economists and their adherents does not allow for temporal finiteness of the model. Many decades ago it was made that way on purpose as part of the effort to fight Marxism. For this reason, neither monetarist nor Keynesian versions of that common language are adequate to reflect the actual causes of the on-going crisis.

Note that Marxism faced a similar problem. Let me remind you that Adam Smith in the 18th century described that technological progress is about intensifying division of labor, which in turn requires market expansion (even Pushkin in his Eugeny Onegin mentions some things in this regard). But at that time this was not yet a topical matter. It became very critical in the late 1800’s and early 1900’s, when the three technological zones of the time (i.e. Britain, Germany, and the United States) were no longer capable of extensive expansion thus bringing about reduction in capital efficiency. This resulted in a crisis, which was later repeated in the 1930’s, the 1970’s and is going on now.

Besides, it was Rosa Luxemburg who was defending Adam Smith’s position, while Lenin was her opponent. The reason for Lenin’s opposition lay to a large extent in political subtleties of a situational nature rather than in the uniqueness of his views on economic processes (he had never been an economist). As a result, Rosa Luxemburg’s works received no further attention in the USSR. And the theory (which could have helped the USSR to come out victorious in the Cold War, which the Soviet Union was close to winning in the early 1970’s) was developed mostly by efforts from Mr. Oleg Grigoriev in early 2000’s. The main point of the theory is that further intensification of division of labor is impossible in the conditions of globalized markets. In other words, we have returned the theory to its starting position, initially outlined by Adam Smith and later abandoned in the late 1800’s and early 1900’s for ideological and political reasons.

But the underlying issues are still there. In particular, the language of “economics” still refuses to allow for the “end” of capitalism. So its very framework will never allow one to arrive at conclusions similar to ours. This explains why we are witnessing a very peculiar thing – five years ago adherents of Western schools of economics would call our conclusions lunatic, but things have changed now. They acknowledge that our description of the crisis is generally correct, but they are absolutely clueless as to how we came up with such conclusions since there are certain intermediate points in our conclusions, which their scientific language cannot describe
The consequences of this are quite interesting. First and foremost, we must realize that the Western schools of economics will never be able to describe the on-going crisis and respective solutions properly since that will demand to dismantle their own fundamentals and think outside the boundaries. The historical experience shows that it can take not less than decades to do that. So the economic science will be developing outside the Western world within the next several decades.

Besides, if the West wants to play a serious role after the crisis, they will have to provide an objective description of their problems – in other words, they will have to take a look from the outside. But that requires people who view things outside their own paradigm. From the civilizational point of view, that means the West must expand their fundamental principles even though they may be required to sacrifice some of their identity. It is a matter of life and death for the West, but it is evident they are not quite ready for that.

It must be mentioned that, for example, inviting us over to, say, Harvard to work will be of no avail because we are going to face nothing but obstructions from the Western scientific community. Consider the way our theories are treated in such institutions as, say, New Economic School (NES) in Moscow, Russia. I regularly refer to it as a totalitarian sect because we must understand that, as a clone of Western institutions, it has no other option but to strive to “outpope the Pope”. Any attempts to “implant” us as researches in Western think-tanks will lead to similar results – there must be parallel scientific schools, but that is only possible, in the broad sense of the word, outside the West.

In conclusion, I would like to mention that our research on the theory of the crisis is only part of the necessary work to be done because it is not enough to simply grasp fundamentals. It is necessary to create a new scientific language capable of describing the modern world as a whole. To me, that seems to be the primary goal for social sciences today.

Mikhail Khazin

Read the Russian original here

HOW THE SOVIET ELITE EMBRACED WESTERN ECONOMICS

Russia and other so-called “countries in transition” from among the former Soviet bloc are undergoing a painful neoliberal experiment, in which entire sectors of their economies get dismantled under slogans of free market and democracy. Only the blind cannot see that the unrestricted chaos of economic interactions believed to be building up national economies does quite the opposite in reality. Among the blind folks are politicians, economists and media. Their reliance on corporate funding (from within the country as well as from abroad) makes them oblivious to the bacchanalia of economic liberalism and its consequences.

The nouveaux riches that have sprung out of circles close to the former Soviet nomenklatura see the national economy as nothing more than a hunting ground. Officially, they hide behind rhetoric à la Hayek and Friedman simply because it justifies their greed and other vices. Any other viewpoint on economic development is considered worthless and is held up to ridicule.

Even though neoclassical economics has been many times proven incapable of any meaningful systemic analysis, it turned out to be very much to the liking of those Soviet apparatchiks that had some kind of property under their control. First, as part of the Soviet system, they could only dream of benefiting from that property without any fear of losing it as a result of political infighting. Second, they were reluctant to engage in the building up of the economy. In other words, the very culprits of the Soviet economic demise were seeking a free ride on the backs of those who would suffer from that demise. The capital-controlling apparatchiks neither wanted to assume responsibility for the worsening of the Soviet people’s living conditions nor sought to trouble themselves with improving them. They preferred personal gain to overall economic development. As you can probably see by now, the Western neoliberal economics was a perfect ideology for them – it guaranteed international recognition of privatized property and relieved the new bourgeoisie of any responsibility for the consequences of their actions.

Thus, the ideology shift managed to conceal the fact that those who had property and political power to protect it have managed to preserve both. In other words, the bureaucratic state capitalism remained the essence of Russia’s economic system.

Boris Anisimov

BUSINESS ALONE IS NOT A PANACEA

Those who have been paying attention to the recent news from Russia already know about a river cruise ship that sunk on the Volga river about a week ago. The death toll is approaching 100 people. It is being investigated what brought about this disaster, but numerous reports indicate that the technical condition of the boat was very poor and was, most likely, the cause.

News agencies reported that the deplorable condition of the vessel had not prevented the management of the cruise company from sending the boat off to another voyage, which unfortunately resulted in a tragedy. Former members of the crew and other witnesses confirmed that the vessel required a substantial overhaul, but the owners of the company remain deaf to the voice of reason and refused to pay up.

The most horrifying realization, which is gradually dawning on many Russians, is that that particular occurrence is not unique. There are other cruise ships in Russia that require either major overhauls or replacements, both options being unfavorable to the business community due to the need to make investments. This problem haunts many other industries of the Russian economy – business is not willing to part with funds even when people’s lives are in danger. I can think of several other disasters in recent years that were caused by lack of funding. This is something that the entire Russian economy is facing nowadays.

So where are the efficient private owners willing to foot the bill of Russia’s technological development? Where are those small- and medium-sized companies full of desire to replace Russia’s crumbling infrastructure at their own expense? Where is the free market that should have provided those volunteers as numerous economics professors promised us at the outset of the liberal reforms in Russia? Why is it that the economic reality in modern Russia is even uglier than in the Soviet times?

We were amazingly naïve to believe that business per se was a panacea for our economic woes. Business is part of an economic system in general and the way that system operates influences all its component parts – business is not an exception. What is it that business is after? Profits, for sure! If those are hard to come by for whatever reason, it will be almost impossible to convince the business community to develop new industries, to open up new lands, to finance new scientific breakthroughs. Business is short-sighted by definition and is reluctant to participate in undertakings with extensive payback periods.

The gradual collapse of the former Soviet infrastructure in Russia testifies of the gruesome underfunding of the entire economy. And it is pretty easy to see why that is the case. The costs associated with the tough climate and territorial coverage are obvious enough. The critical part of the dilemma is consumers’ solvent demand, which has been rather low in Russia. While the US consumer used to be able to compensate for insufficient purchasing power by taking out new loans, the Russian counterpart had to fend for himself. As a result, the overall profitability of the Russian economy has been low. Also consider the enormous credit rates in the country, and you will start wondering how in the world the Russian business manages to stay afloat at all. The answer is also simple – by cutting all possible costs, compromising safety regulations and quality standards, and cheating customers, etc. That is why the voice of greed speaks louder to Russian entrepreneurs than the voice of reason. As soon our liberal-minded government removes regulation in a particular sphere, the cash-starved businesses immediately turn all safety precautions and quality requirements into a Potemkin village. Should any problems with the law arise, all matters end up being solved a couple of bribes later.

When signing praises to free market, those neoliberal professors were obviously turning a blind eye to the fact that western countries live in conditions hardly reminiscent of their laissez faire ideal. In “developed” countries, small businesses have long lost their role in determining directions of strategic development, which fully rests with the government and major corporations. Independent mom-and-pop businesses simply do not have enough financial resources and political power to have a say in such matters. When it comes to planning the national economic development, let alone the nation’s geopolitical agenda, big business and government officials run the show.

As for markets for small- and medium-sized businesses, it is demand from major economic players that creates them. This in turn boosts employment and investments within the national economy, which then result in higher purchasing power and more spending thus generating revenues sufficient to cover the costs through the economy. That is when businesses become less reluctant to spend on safety and quality.

This brings us to the main point I am trying to get across – the mechanism for ensuring the expanded social-economic reproduction in post-Soviet Russia has been annihilated by two decades of neoliberal reforms mainly aimed at boosting foreign corporate profits at the expense of the entire economic system. Russia is dragging along by using up what has been left behind after the Soviet Union’s economic empire, but as soon as that resource is utterly depleted, Russia is likely to experience a severe economic blow it may not recover from. The way its economy is run only makes certain that, no matter how much input has been provided, the output will always remain insufficient to restart the reproduction processes. To my mind, that seems like a deliberate act of sabotage on the part of the post-Soviet pro-Western elite, who can be rightfully called compradors.

The tragedy on the Volga river only testifies of the gruesome economic reality Russia has been foolish enough to place itself in.

Boris Anisimov

ECONOMIC PRAGMATISM

It is a myth that globalization benefits all. It is being repeated to us over and over that global free markets bring all economies to prosperity. According to laissez-faire troubadours on corporate payrolls, increasing unemployment, debilitating de-industrialization, meager domestic solvent demand, imposed currency board restrictions, lack of cheap long-term investments do not matter to economic development. To many countries throughout the world, they say that as long as domestic markets are free of government interference and stand wide open to embrace their “bright” capitalist future (usually in the form of foreign speculative capital), their economies can one day have the honor of bearing the title of a developed nation. Then goes the fine print, which says that standards and timeframes for the nomination shall be determined by other developed countries.

This is akin to chasing your own shadow! Indeed, no matter how hard you try, they will always have the right to say: “Sorry, sport! You’re not up to the standard yet.” There have been so many developing countries that went through this “ordeal by free market” that I do not even want to spend time listing them here. These considerations bring some modern economists and politicians to the thought about resurrecting the national understanding of economic reality. As of late, the focus has been less on national economic systems, but on global markets. Westernization deliberately disguised as globalization has been hooking their victims’ economies up to multinational production chains with final products ending up on the store shelves in the developed world thus imposing on developing countries particular niches in the international division of labor, which make them utterly dependant on the foreign supply of inputs and the foreign demand for outputs.

In this situation, the national economic system is left unattended. In the avalanche of revenues from abroad, few bother to assess the national economic viability when the global economic trends change. And they do – quite dramatically at times. To my mind, this underlines not only the need for a revision of the economic discipline as such by re-introducing political economy, but also a need for more emphasis on national socio-economic issues by introducing national political economy. I may write an extended article about my vision of this specialized economic discipline.

It is hopefully needless to mention that it is the economic basis that tends to bring about changes in the superstructure. While the latter can affect the former, the prominence still remains with the basis. Thus, the existing political institutions, ideals, slogans, public figures, etc. have all appeared as a direct result of the way the current economic system is run. When it collapses, so does the legitimacy of the political elite. On the contrary, we are told that bourgeois democracy is the only way to economic prosperity. As a political economist, I view modern-day politicians as products of the modern-day global economic model, which now lies breathless by the sideways of economic development. No matter what they say or do, they are part of the system. They have all been born into it (please note that I do not imply the hereditary transfer of political power) and few will dare to leave it. Whether it is religion, national identity, outward threat or anything else that they use to justify their existence, it does not matter.

Considering the above, I cannot see any mainstream political party or movement nowadays that treats economic pragmatism as the core of their political platform, which should envisage both systemic sustainability and flexible methodology, i.e. the qualitative development of the national economic system rather than the mere enrichment of the corporate elites, who only talk about adjusting the mechanism – taking the entire system to a new level of development will simply put them out of business. They are never going to consent to that.


Boris Anisimov

PROPAGANDA ECONOMICS

I honestly hope that these global economic hardships will teach humanity a good lesson. While realizing the catastrophic effects of a global economic collapse, I, in a sense, welcome this crisis in hopes that it can wake us up to the nasty economic reality we are in. Corporate economists together with politicians and mainstream media are shouting their heads off convincing everybody that the dolce vita snatched away by the “financial crisis” is about to return soon – it is just around the corner. These are the times of propaganda economics when a bunch of highly-paid clowns tell the common folk stories about the free-market neverland in order to soothe them into complacency and inertness.

Under the watchful gaze from boardrooms and CEO offices, this charlatan circus hits the road each time corporate revenues stop rising. When things get really rough, some politician gets assigned to play Peter Pan in this show. His opening lines about refusing to grow up are apparently designed to convince adults that it is not yet time to wise up. And most end up remaining in childish delusions.

Any sensible economist – whose mouth is not gagged with employment obligations to transnational corporations and whose hands are not soiled from slicing up developing countries throughout the world – will agree that the path the world economy is on leads to greater social and economic dangers in the future. He or she would agree that the profession of an economist faces a serious conflict of interest these days, but corporate elites would like to remain silent about.

As a pharmacist finds it more profitable to sell painkillers rather than provide a cure, a modern economist is trained to ensure enrichment of his bosses rather than solve economic problems. Like a ravaging pack of wolves, they plunder entire countries by exploiting their weaknesses while long-term consequences of their decisions are ignored due to the irrelevance to the short-term profitability.

There must be a moral side to economics, but expecting morality from a businessman together with the economists on his payroll is akin to expecting loyalty from a hyena. This is especially true in hard times like today.


Boris Anisimov

WHAT COMES FIRST: A CHIKEN OR AN EGG?

We are being incessantly convinced by developed countries that their economic progress can be fully attributed to the business-friendly microeconomic environment they have created. But independent economists from emerging economies realize quite well that this is a cunning little lie with detrimental consequences for further economic development of a developing country. They know that these laissez-faire mantras aren’t worth a rotten egg because the developed world’s economic history clearly shows that it was large-scale investments that made their advantages in technologies and trade possible over the last several centuries.

This chicken-and-egg dilemma always gets turned upside down when presented by corporate lobby to the naïve public in both developed and emerging countries. These market-charmers do correctly point out the leading role of long-term investments in ensuring economic development, but they place them after the microeconomic practices of individual economic agents. Confusing cause and effect is very typical of modern economics – the macroeconomic stability, so necessary for a business-friendly environment, is claimed to be a by-product of free market.

Unfortunately, most people have not been inquisitive enough to stop this lie from spreading any further. It is sufficient to have a look at what historically brought about free market in order to see that – thanks to massive exploitation of colonies by European countries, slave trade, drug trafficking, legalized piracy and deliberate government spending aimed at encouraging such practices – private free enterprise was able to thrive.

Western superpowers’ methods of enrichment back in the days were far from the ideals of democracy and free market, but that does not stop developed countries from lecturing the emerging economies and even imposing economic policies. Horrible genocide and crimes committed by the Western world for the sake of plundering colonies thus lowering domestic production costs are not included in college books.

In fact, they should. This is exactly what any Economics 101 book should start with. Then it should point out the fact that economic growth and then economic development occur as a result of massive long-term investments (whatever form they might take), which create favorable macroeconomic conditions. It is because of those conditions that microeconomic successes are possible.

Boris Anisimov

BUSINESS: A SERVANT OR A TASKMASTER?

Young lawyer: Dad, I have just solved the case you have been working on for 20 years!
Retired lawyer: Idiot! You have just solved the case that has been feeding us for 20 years.


People outside of the economic profession see economics as a solid mass of knowledge confirmed by complicated mathematical calculations and enormous practical experience that the developed world has accumulated over the last couple of centuries. Those who went beyond a high-school economics course realize that things are much more complicated – there are several economic schools that continuously compete for public attention and the right to influence political decisions.

Those schools that enjoy political and financial support from influential people and institutions received a generic title “mainstream economics”. Their scope of knowledge is being spread throughout the world in various forms and shapes – including college textbooks and media coverage – as a fundamental scientific foundation for arranging economic processes. The analysis provided by mainstream economics is unquestionable for international organizations, governmental agencies, political associations, colleges and universities as well as businesses of various kinds.

Not a single school within the conventional economics has ever challenged the notion of business constituting the economy itself. To them, business means the economy and the economy means business – there is no other way to look at it. They may be arguing blue in the face about government interference, money supply, banking regulations, etc. But none of them will ever say a word against the existing transnational corporate system. Boastful corporate claims and risky investment practices prior to the crisis have now given way to panhandling for government bailouts, which makes taxpayers wonder about the way business as an economic activity affects the economy.

For the purpose of analysis, a capitalist economy can be divided into two spheres (for lack of a better word). The former is associated with production of economic goods, which has been the primary purpose of any economic activity from the very early days when mankind ever became capable of it. It was the desire to eliminate scarcity that caused people to communicate and cooperate with each other in order to combine efforts in opposing forces beyond their individual abilities. As a result, humanity came up with various types of economic systems developing them from primitive models to more advanced ones in order to meet the ever-changing circumstances that human beings would find themselves in. Although those systems are far from flawless, their objective and the only purpose of existence have been the provision of economic goods for a society at a particular stage of its social, technological, and thus economic development. This sphere of human activity is the true essence of the word “economy”.

Let us give this part of an economic system a name to separate it from other elements. With certain reservations, we can probably call it a production sphere recognizing that it has been part of any society under any political and ideological regimes since its very existence is due to our human nature and cannot be done away with without putting humanity in peril of utter destruction. Thus, only an economic system capable of maintaining the provision of economic needs of the entire society by reproducing public and private resources can be called efficient.

However, we can also see the existence of another sphere, which has to do with trading economic goods for certain exchange equivalents (or monetary values) and managing pools of those equivalents by distributing and re-distributing them among members of the society in accordance with formal and informal regulations. This other sphere seems to have existed as part of pre-capitalist economic systems in various primitive forms, but its significance in our day and age can hardly be underestimated as the control over the circulation of these equivalents, which we call “money”, has become essential for controlling the exchange of goods within the society.

This monetary or financial sphere of a capitalist economic system is capable of allocating funds on credit thus making monetary equivalents a unique commodity. Under capitalism, goods and their monetary equivalents flow in opposite directions within an economy thus blending the two spheres into an inseparable unity. Even prior to capitalism, money as a unique commodity in the form of precious metals became capable of circulating separately from the goods while preserving its exchangeability for them and making financial returns the ultimate objective of any business activity. Capitalism inherited this arrangement from preceding economic systems and has taken it to a higher level. When possible, businesses strive to break away from the obligation to produce anything and prefer profiting from financial operations alone. Even when businesses do get involved in the exchange of physical goods, the public benefit of a commodity or a particular type of business activity remains outside of their concern. They proclaim financial returns as the ultimate benefit, no matter what commodity gets into consumers’ hands and what impact it might have on their living standards, health, their children’s conduct, etc.

We can thus define business as a mere money-making activity. It may be associated with providing a society with a particular commodity or service, but the ultimate goal remains unchanged – financial returns at any cost to the rest of the society. Those readers who run their own business are probably furious now when reading this. They are convinced that thriving businesses are a must, that entrepreneurs, in fact, render a service to the society by taking the risk of organizing production and distribution of goods and are entitled to a compensation of their investments and efforts.

From this angle, the logic seems flawless. Now let me suggest an alternative viewpoint. This is where we are starting to see that approaches to economic development as suggested by mainstream economics and political economy are fundamentally different. Please do not rush to conclude that political economy is all about bashing private entrepreneurship. If we put things in proper perspective, the point is that the positive effect of business on the prosperity and well-being of a society is not absolute, as we are told, but is conditional upon factors, which derive from the very nature of capitalism as an economic system.

In my previous articles, I have already mentioned that political economy recognizes that capitalism has always been heavily addicted to economic growth and identifies intrinsic systemic reasons for that addiction. The expandability of solvent consumer demand (either by forceful expansion into foreign countries or simply by reducing the cost of domestic borrowing) is the most critical condition for any successful business activity. The countries of the developed world have seen several decades of favorable business conditions mainly because of an unceasing economic and political expansion into less developed territories. The most recent expansion has received the name of globalization. Obviously, developing economies typically featuring meager domestic solvent demand coupled with a limited ability to tap into foreign markets were never able to generate sufficient long-term investments to compete with the more affluent countries. Businesses in such conditions often ended up searching for other ways, often immoral and illegal, to ensure financial returns from their activities by lobbying for government contracts, physically eliminating competitors, externalizing costs by pushing them onto the public, etc. Needless to say, the only beneficiaries of such business activity have been members of bureaucratic and corporate elites. Since higher solvent demand in developed countries provide more profit-making opportunities, emerging economies, while in need of investment capital, often become capital donors themselves as local businessmen step up capital flight in hopes of higher returns from abroad while breeding financial anemia and corruption in their own countries. As numerous industries remain gruesomely under-funded for a significant time, the production sphere (as defined above) becomes chronically incapable of fulfilling its primary responsibility.

For political economy, this situation is a disaster with adverse long-term consequences for many generations. As opposed to conventional economics, political economy recognizes that creating a business-friendly environment is far from being sufficient for putting the economy to work for the public benefit rather than for a small group at the very top of the society. In fact, some do think that worrying about the society is not even necessary. The “invisible hand” is believed to be miraculously responsible for everybody’s well-being – as long as individual profits keep rising, no-one gives a damn about what goes on outside their window. But as developed economies’ middle class is rapidly losing its positions, the concept of economic miracles is getting very hard to sell.

Political economy is pretty specific that business activity is conditioned upon various factors that eventually determine its ultimate impact on an economic system. In certain conditions, that impact is going to be negative. Any capitalist economy, when left with no expansion opportunities, becomes incapable of preventing a downfall in corporate profits, which encourages capital owners to either seek alliance with the government or externalize costs at the expense of the local population. Unfortunately, conventional economics ignores developing countries’ immense evidence to this effect and continues to paint a rosy picture.

Whose interests does conventional economics protect? The answer is a no-brainer – business interests. Economics was designed to answer a different set of questions than those raised by political economy. Economists employed by corporate and political elites are often instructed to make means of enrichment out of existing economic problem rather then solve them for future generations.

This explains why corporate economists and politicians were blind to the impact that outsourcing to low-cost country has on the developed economies by limiting its consumers’ ability to spend thus boring into the very pillars, on which the entire global economy is now resting. This explains why IMF recommendations attached to their credit programs end up slowing down developing economies rather than speeding them up. This explains why, in spite of all the efforts, poverty and misery continue to spread.

From the scientific standpoint, economics cannot be considered a fundamental economic discipline because it provides nothing but a set of applied principles conditioned upon underlying shifts of economic reality. That is why the official Western economic theory underwent two fundamental revisions in the 20th century (from laissez faire to Keynesianism, and then on to neoliberal monetarism). When an economic system starts shifting its “tectonic plates”, corporate economists can only shrug their shoulders because, figuratively speaking, trimming the weeds over and over again is more profitable than uprooting them.

To those who studied economic history, this situation might look familiar. I have recently been reminded that Aristotle, a famous Greek philosopher, used to separate oikonomia (knowledge of managing resources of a household for long-term benefits of its members) from chrematistics (knowledge of manipulating property and wealth for maximizing short-term monetary benefits to an individual owner). The two are closely related so people, Aristotle warned, tend to confuse one with the other. According to him, the chrematistic desire for personal enrichment at any cost easily leads to exploitation of both people and nature.

And it is very unfortunate that colleges in many countries have moved their attention from the fundamental discipline of political economy and eagerly embraced economics, which I see to be superficial and situational. It justifies opportunism, oversimplifies reality and confuses cause and effect, and fails to keep pace with systemic changes. If you are an economics instructor, you may want to cover your ears now because I am going to say it out loud – MODERN ECONOMICS IS AN ANACHRONISM. Reality has grown more complex, but neoclassical economists still live in dreamy recollections of the past.

Please do not rush to conclude that political economy is about bashing private entrepreneurship. As long as capitalism lasts, business will remain its essential part. But I will not be surprised if further economic development necessitates limiting business activity to particular sectors or even encourages alternative ways of organizing economic systems. As an element inherited by capitalism from preceding economic formations, business has its pluses and minuses. And since it is likely to stick around while you and I are still here living on this planet, we should recognize the need to make business our servant rather than a taskmaster.

Unfortunately, humanity has done a lousy job in this respect – it is business that dominates media, dictates fashions, shapes opinions and rewrites history turning politics and wars into instruments of profit-making. It is business that has become the golden calf of our time, elevated on the pedestal of glory and so enthusiastically worshipped by economists and politicians. In their devotional fury, they remain absolutely deaf and blind to extensive evidence that, without unbiased strategic planning and control by the wider society, business becomes detrimental to further social and economic development. It may be prosperous and thus arrogant in times of plenty, but, when facing no opportunities for further expansion, it starts tossing about wildly, like a decapitated chicken in mortal agony, willing to break any law or moral principle for the sake of more profits. Luckily, some countries do see the danger of exposing their economic systems to chaotic convulsions of oversaturated markets and take unorthodox measures to ensure economic sustainability.

Boris Anisimov