Of all the effects of 2008's economic meltdown, the most significant might be the growing belief that the country is now on the road to socialism. Within days of the government's 2008 bailout of Sallie Mae (SLM) and Freddie Mac (FRE), the media began to resound with complaints about the country's supposed shift leftward; over the next few months, investors and commentators began declaring that the United States was now more socialist than Canada and more communist than China.
The first problem with this pink panic lies in its assumption that capitalism and socialism are irreconcilable enemies, that markets are either completely free or completely government-controlled. The truth, however, is far more complex: after all, if socialism and capitalism were such diametric opposites, then one could argue that the first time the government paid an employee, gave a contract to private industry, or loaned money to a failing company, it effectively made the leap into socialism. If this was the case, then America has been socialist for most of its history.
A more useful, traditional definition of socialism holds that a socialist system must fulfill three basic tenets. The public -- or, in this case, the government -- must own the means of production, control the means of production, and distribute the profits of production to the general population.
The first problem with applying this definition to 2008's bank bailouts lies in the fact that America's financial institutions don't actually seem to be producing anything. Traditionally, banks have been positioned as the fuel injector on the economy, distributing the gas of credit to the areas that need it most. Now, however, banks seem to be largely producing scandals and foreclosures. In this context, public ownership of the banks seems to qualify as control of the means of destruction.
Moving on, it becomes worthwhile to ask whether the government does, in fact, own the companies that it has bailed out. On paper, after all, America's taxpayers own 80 percent of AIG, 60 percent of GM, and roughly 33 percent of Citigroup (C). However, the bailouts have been positioned as loans, suggesting that the country has effectively become the bank of last resort, giving emergency handouts to companies with insufficient collateral.
The ownership question becomes even thornier when one considers the issue of control. After all, if a private investor put up 60 percent of GM's finances, he or she could expect to control the board; however, this has not been the case in the companies that have received bailouts. Admittedly, CEO Rick Wagoner resigned when Obama asked, but the key here is that he resigned and Obama had to ask. Obama couldn't summarily fire him. Perhaps more importantly, the president could not choose Wagoner's successor and has not been able to control the company's policies.
The difference between ownership and influence becomes even clearer when one considers Wall Street. When the government moved to place limitations on executive compensation, the ensuing shrieks and squeals were reminiscent of a pig kicking contest. The same goes for Secretary Geithner's attempts to control the bank payback schedule.
The biggest shortcoming of the entire leftward-shift argument lies in the notion of profit sharing. While taxpayer funds have kept much of Wall Street and Detroit afloat, there has been absolutely no discussion about the possibility of nationalizing the profits of America's bailout beneficiaries. In fact, as many pundits have noted, the government support of the past year has, effectively democritized risk while privatizing profit, enabling business owners to benefit from their successes without having to pay for their failures.
This is not an idle or semantic consideration: to put it bluntly, socialism that doesn't economically benefit the people is an oxymoron. In fact, the economic construct that has developed over the past year far more closely resembles corporatism, a form of government in which corporations work together to control government policies and distribute profits among themselves. Effectively government of the corporation, by the corporation, and for the corporation, this system is, arguably, the economic nemesis of socialism, as it consolidates both profit and power in the hands of an elite cadre of oligarchs.
The idea that America is moving toward corporatism gains greater weight when one considers the corporate ties of some of the most prominent government insiders, including Henry Paulson (Goldman Sachs [GS]), Lawrence Summers (D.E. Shaw), Robert Rubin (Goldman Sachs), George W. Bush (HKN [HKN]), and Dick Cheney (Halliburton [HAL]). One need look no further than Secretary Paulson's original no-strings-attached bailout for evidence that these corporate ties have the ability to massively influence policy.
Over the past year, the dire predictions of creeping socialism have carried an implicit warning that the United States is moving closer to the collectivist horrors of Mao or Stalin. The truth, however, is quite different. As one pundit pointed out, "Fascism should more appropriately be called Corporatism because it is the merger of state and corporate power."
The writer? Benito Mussolini.
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