Germany’s new Chicago Boys

The deep crises in the world economy and political establishments are not only reflected in attempts to resurrect Keynesian-style policies. Other capitalist economists are proposing that an even harsher neoliberal model should be applied – looking back to the 1970s and 80s. That is the subject of a book by German economist, Rainer Zitelmann, reviewed here by PETER TAAFFE.

The Power of Capitalism: a journey through recent history across four continents

By Rainer Zitelmann

Published by LID, 2018, £19.99

This book by Rainer Zitelmann is quite clearly written as a justification for a further shift towards the right in German capitalism’s economic policies, a process already underway and reinforced by the growing crisis of the economy. It can also be used on a much wider scale by bourgeois economists in other countries. It is likely that Germany will tip into recession in the third quarter of this year, the country’s central bank has warned. It has gone from the powerhouse of Europe to an economic laggard, weighed down by turmoil in the automotive industry, the US-China trade war, and the prospects of a chaotic UK exit from the European Union.

In a completely slanted, one-sided way, the author explores the overall achievements of capitalism. He also denigrates, in the crudest fashion, the partial attempts to apply the idea of a planned economy in economically underdeveloped countries. This includes ‘Soviet’ Russia, Cuba, Venezuela or any country that sought to challenge the brutal rule of landlordism and capitalism. They are attacked without any recognition of their real, although partial, contribution to lifting society out of the economic and social degradation to which they were condemned.

In the main, these ‘experiments’ did not take place in the advanced industrial countries, as Karl Marx and Friedrich Engels had originally envisaged, but in economically and culturally underdeveloped countries. Yet Zitelmann lists and ridicules in meticulous detail the mistakes and blunders of the Stalinist states in their attempts to run society and the economy from the top. Without workers’ power, control and management was concentrated in the hands of a bureaucratic elite that massively distorted the achievements of planning, and acted to undermine and dissipate the full possibilities of the planned economy.

Leon Trotsky, in his criticisms of Stalinist Russia, far more effectively defended the real gains of the planned economy. It had transformed Russia from the India of Europe – largely rural at the time of the October 1917 revolution – to become the world’s second-most industrial nation at one stage. Trotsky also called for the realisation of the full benefits of a planned economy by the overthrow of Stalinism through a political revolution.

The bureaucracy would have to be replaced by the system of popular control and management that existed in the first period of the Russian revolution. Trotsky fought for democratic workers’ power to prevent the incubus of Stalinism, and to remove the parasitic bureaucratic caste so the gains of the planned economy would go to the working class and poor rather than the greedy bureaucracy. At the same time, he recognised that, initially, capitalism had broken at its weakest link in the case of Russia. This was repeated in China later.

An entirely different story would have emerged had revolutions, consciously led by the working class, taken place in industrially developed countries. Moreover, there was a real possibility of this happening, for instance, in the German revolutions of 1919 and 1923, through the classic form of democratic workers’ power and democracy. These were derailed and eventually defeated, primarily because of the faulty leadership and mistakes of the Stalinist-controlled Communist Party of Germany, as well as the leaders of social democracy.

Nonetheless, the changes wrought by the Russian revolution in the development of the planned economy, even with the limitations of its confinement in an economically backward country, were spectacular in comparison to the record of capitalism. Even during the world boom of the 1960s and 70s, the Scientific American journal drew the conclusion that no capitalist economy was able to chalk up an equivalent record for the speed and scope of development as the ‘Soviet’ economy, at that stage.

Capitalism’s countless victims

Needless to say, this is not recognised by Zitelmann. Neither are the bloody legacies of capitalism in its rise to power. The mountain of victims is endless. The same applies to the current weaknesses and failures of capitalism, despite the laudatory comments of the author. Indeed, we have the testimony of some of the most eminent participants in the capitalist machine of the maladies of the system even before the onset of the crisis of 2007-09. Incidentally, Marxists were among the first to predict the inevitability of this collapse, well in advance of bourgeois economists. Even conscientious capitalists – among whom Zitelmann is not counted – recognised through first-hand experience the inevitability of economic collapse, a vindication of Marx.

In October 1997, John Cassidy, economics correspondent of the New Yorker, reported a conversation with a British investment banker working in New York: “The longer I spent on Wall Street, the more convinced I am that Marx was right. There is a Nobel Prize out there for an economist who resurrects Marx’s approach and puts it into a coherent theory. I’m absolutely convinced that Marx’s approach is the best way”. There are many other devastating insights illustrating Marx’s foresight in describing the mechanism of the capitalist system in Francis Wheen’s perceptive little book, Das Kapital: A Biography, from which this example was drawn.

You will not find any recognition of capitalism’s monstrous crimes and the terrible suffering it has inflicted on humanity in Zitelmann’s work. These include imperialist plunder and the slave trade, with victims numbering millions, or the estimated 125 million deaths in two devastating world wars. Without the slave trade, as Marx pointed out, there would not have been the development of the world market, which was the precondition for the colossal development of the productive forces through science, technique and the organisation of labour.

In fact, the precondition for establishing democratic socialism is to be found in capitalism’s development of industry and the productive forces to an unprecedented level. That will allow us to carry through the socialist reorganisation of society and to abolish want and privation. This, in turn, will lead to the possibility of undreamed of plenty for the majority of humankind.

Zitelmann spills a lot of ink to show the blunders of Stalinism, as well as the dislocation and colossal waste in Stalinist Russia or Mao Zedong’s China. He makes no attempt, however, to explain the objective basis for this, which is to be found in the character of these states. Capitalism broke at its weakest links, where the heritage of economic underdevelopment and poverty had to be overcome before the tasks of establishing a democratic world socialist system could be completed. Dialectically, this isolation promoted the rise of a privileged officialdom – a colossal bureaucracy that proved to be a huge obstacle to the development of real workers’ democracy and, ultimately, socialism.

Then there is the unspeakable torture of whole countries and continents under the iron heel of fascism, for which the capitalist ruling classes of the world bear responsibility. The German, Italian and Spanish ruling classes created this monster as a means of defending their system from revolution. This involved the mobilisation of the despairing middle class in a largely one-sided civil war to destroy and atomise the politically-disarmed working class. Moreover, they were armed and supported by the capitalists of Europe and elsewhere, until they came into collision with these fascist regimes over the division of the spoils. That led to the second world war.

On occasion, Zitelmann is prepared to concede through gritted teeth that capitalism has a bad record, but he then seeks to argue that its merit is that it is a self-correcting system. Tell that to the mountain of victims of Nazi slave and extermination camps, or to the Russian people who lost 25 million dead. Not for nothing did Marx say that capitalism came into life oozing blood from every pore. Moreover, it continued to do this through its conquest of the world and its industrial revolutions.

A new phase opens

This book is just a continuation of the attempt of capitalist theoreticians to shore up their system in the teeth of the ideological offensive against it following the devastating crisis of 2007-09, the effects of which are still being felt powerfully today. The major schools of capitalist economists are currently divided between those who, empirically, want to introduce a few mild reforms, a patchwork job to put capitalism back on its feet, and another, more ‘enlightened’ section, which recognises the systemic maladies and understands that this has provoked mass questioning of the capitalist system.

It is symbolised by the rise of new left formations or the outline of such formations. The US has seen rising support for Bernie Sanders, Alexandria Ocasio-Cortez and Elizabeth Warren, and a clear swing to the left, including the embrace of a kind of basic ‘socialism’ among millennials. It means that a new phase has opened up, with the capitalists considering a road of partial or really radical economic measures. The same process resulted in the formation of Podemos in Spain and the movement around Jeremy Corbyn in Britain. Something similar could be repeated in a split from the Democratic Party and a new American workers’ party, at a certain stage.

This ‘radical’ wing of US capitalism – broadly reflected in the left of the Democratic Party – wants to go much further. It proposes a serious injection into the economy, primarily through state expenditure, along the lines of president Franklin D Roosevelt’s 1930s New Deal. However, the US was only capable of introducing such a Keynesian programme because of the colossal accumulated wealth, particularly the ‘plump savings’ from the past. Other capitalist countries, such as the UK and France, rested on much narrower economic foundations. They had run up huge debts due to the first world war and were not capable of fully emulating the US. Meanwhile, Germany possessed no reserves, having been stripped of its economic power particularly its colonies, and the ruling class therefore opted for fascism.

Today, however, even the US, with its colossal accumulated debt of $22 trillion (103% of GDP in mid-2019), cannot consistently pursue such an economically extravagant programme. On the other hand, the bourgeoisie globally are terrified of the spectre of mass radicalisation and revolution (the ‘pitchforks’) if nothing is done to solve the systemic problems. It is one thing to speak and write about ‘economic reforms’ in answer to ten years of savage austerity. It is a completely different matter to implement this in practice. Indeed, Zitelmann wishes to implement the opposite: a drastic retrenchment programme of austerity for the masses.

This is what his book is all about. It represents a potential turning point in history, with a section of the ideologues of capitalism concluding that the current economic policy is not working as effectively as it did in the past and being prepared to switch.

Something similar happened with the exhaustion of the long post-1945 economic upswing. Tory prime minister Harold Macmillan, a trusted representative of the British ruling class, had declared in the 1960s: “We are all planners now”. This was a recognition that a broad consensus existed between the capitalists and their political representatives – the Tory government and the loyal right-wing Labour Party reformists – on the need for state intervention, it was argued, to ‘smooth out’ economic processes. This was the famous ‘mixed economy’. In plain language, it was capitalism by another name, as we argued at the time.

Right-wing ‘economic fundamentalists’ like Milton Friedman were hiding out in universities and think tanks – Friedman in Chicago University (hence the nickname, the Chicago Boys) was the economic guru of the right during the 1945-75 economic upswing. They were reduced to a bourgeois sect awaiting the opportunity to implement their policies when Keynesianism failed, as they expected. That came with the exhaustion of the post-war boom, roughly by the 1970s, and it led to a rightward shift in the summits of capitalist theoreticians and economists.

According to Zitelmann, their political frontmen were German chancellor Ludwig Erhard, US president Ronald Reagan, and British prime minister Margaret Thatcher. Friedman bided his time, honing his right-wing ideas and programme. Like Zitelmann today, Friedman and his acolytes set about preparing the ideological ground in academia in order to step forward when economic ‘difficulties’ provided the opportunity for a new ideological underpinning to capitalism.

Socialism utopian or scientific

Zitelmann’s characterisation of both capitalism and socialism are bizarre, to say the least. Capitalism is, you see, a “spontaneously generating system” that flows from the real experience of humankind. Socialism, on the other hand, is a product of “utopian schemas” in the heads of disaffected intellectuals!

It is true that, even before the development of capitalism, sensitive intellectuals decried an economic system that relies on greed and a dog-eat-dog society. Even Zitelmann quotes Thomas More, who lived in a time when capitalism had not fully developed and society was still dominated by feudal relations, regarding the distaste of that kind of system: “I am entirely convinced that no just and even distribution of goods can be made, nor any ethical happiness be found among human beings, until private property is lawfully abolished. While it lasts, for most of humanity and not the worst, there will remain a heavy debt, of poverty and anxiety”. In other words, they would revolt against the elements of capitalism existing within feudalism. That later developed into mass opposition to the brutal system.

The working class was in an almost continuous revolt against the indignities and inhumanity of capitalism from the outset. The idea that it was just disaffected ‘utopian’ intellectuals who opposed the system is entirely false and completely ahistorical. There was the spontaneous mass opposition that developed in all the early upheavals and revolutions against the exploitation of one group by another, including the early capitalist system. The Levellers in England’s 17th century bourgeois revolution, the sans culottes of the French revolution, the Chartists in Britain – the first politically-independent working-class movement in history – and many others took shape before revolutionary socialist intellectuals emerged.

Only then did the most developed sections of predominantly capitalist or petty-bourgeois intellectuals give expression to this revolt. As Marx and Engels pointed out, this inevitably had a utopian character and programme at the beginning. These utopian socialists heroically challenged capitalism in all its manifestations and gave us a glimpse of what was possible under a different, collaborative system. In the words of Engels, one of the first utopian socialists, Robert Owen, was a “sublimely” heroic character who tried to change society behind the back of society, by piecemeal measures.

Some of the schemas of Owen and Joseph Fourier were the product of genius, though utopian in their conception and implementation. At best, they created ‘islands of socialism’ in a sea of capitalism, which is bound to fail. Nevertheless, they anticipated what would be possible, if applied to the whole of society. That would need to be on the basis of the democratic planned socialist reorganisation of society – the task of a conscious, organised working-class movement which was to emerge later.

Brutal 1970s neoliberalism

Zitelmann’s heroes, however, are those who wished to turn back the wheel of history by fronting the neoliberal counter-revolution of Reagan and Thatcher. They established their credo by taking on and defeating a section of the working class, and then intimidating others. This was only made possible by the defeatist leaders of the labour movement at that time. Reagan famously took on and defeated the air-traffic controllers while the rotten trade union leaders stood by wringing their hands. The right wing of the TUC did the same thing, leaving Britain’s miners isolated. They were defeated for one reason only: the right wing of the TUC refused to carry out effective solidarity action, particularly by failing to bring out the electricity and power workers, linked to a general strike. In the wake of this, a series of defeats was inflicted on the working class in Britain and internationally.

Friedman’s theories were tested on the Chilean working class. The election of Salvador Allende in 1970 initiated a process of revolution with the formation of workers’ committees (cordones) in the factories. The masses were reaching out for real power by seeking to change society once and for all in the direction of socialism. The ruling class well understood what was at stake and prepared accordingly to drown the movement in blood. The coup in 1973 initiated the dark night of the Chilean masses, as the military dictatorship of General Pinochet allowed the Chicago Boys to unleash a savage neoliberal programme from which Chile has not really recovered to this day. A similar process unfolded in Argentina and Brazil.

Inevitably, however, the masses fought back and a new, potentially radical, phase has opened up in many countries in Latin America. Now we have the phenomenon of president Jair Bolsonaro in Brazil and the attempt to drown what remains of the Venezuelan revolution in blood, assisted by the ever-present threat of an imperialist-backed invasion.

Those like Zitelmann are clearly hoping to repeat the process, firstly in Germany then in the rest of the capitalist world as a means of decisively altering the balance of class forces. The problem he has is that the Thatcher-Reagan counter-revolution took place at a time when the capitalist-inspired revolt against state intervention and the role of the trade unions held out the possibility of gains for the middle class and even some sections of the working class. Then, the limitations of so-called ‘state capitalism’ and its clumsy, pro-capitalist intervention in the economy alienated many, including workers but particularly the petty bourgeois.

They had been prepared for a switch, to some extent, even if it meant towards the right. Thatcher’s populist measures supposedly gave people ‘a stake’ through the sale of council housing, and the privatisation and sale at knockdown prices of valuable state assets – what Macmillan called “the family silver” – in a mad rush for quick and easy but largely illusory gains, at least for the masses. The lucky few made a quick killing through the sale of previously nationalised industries.

This process was enormously reinforced by the collapse of the ‘Soviet Union’ and Stalinist eastern Europe from 1989, and the obscene and scandalous fire-sale of assets to an array of home-grown and foreign gangsters, the oligarchs. That plunged Russia and eastern Europe into terrible poverty, as bad if not worse than that visited on the working class in the depression of the 1930s.

A battle of ideas

Today, however, the economic background for this proposed counter-revolution is entirely different. Yet some capitalist theoreticians still think they can repeat the previous methods. This was spelt out in a Financial Times editorial that gave a warning and advice to its corporate readers: “Business must act on a new corporate purpose”.

Reporting on proposals from the Business Roundtable in the US, it said there is a need for “explicitly elevating broader interests… of employees, the environment and customers… in order to create a more sustainable and inclusive form of capitalism”. In addition: “Fifty years of shareholder primacy has fostered short-termism and created an environment of popular distrust of big business”. Coming from the largest US business group, this indicates the way the wind is blowing, notwithstanding the naked, pro-capitalist policies of Donald Trump.

So the right-wing analysis and conclusions of Zitelmann’s book – a programme of further savage austerity – are unlikely to get an immediate response. It is more likely that a programme of state intervention, with some similarities to measures proposed by the radical wing of the Democratic Party, will be attempted first. But these will not be effective in solving the accumulated problems created by the disastrous Trump regime. It is in this situation that those like Zitelmann expect to come into their own. His vicious right-wing programme is presented not just for the here and now but is meant to prepare and soften up public opinion for another shift to the right economically at a certain stage.

However, it is not the only ‘new’ analysis and programme that has been tossed into the political arena. There has also been renewed interest in a sustainable left-wing programme, with socialism and the socialist transformation of society at its heart. Ultimately, this is the only way to ensure the defeat of any attempt to further attack the working class.