Transcending capitalism: three different ways?

After the crisis of 2007-8, capitalism has entered among some parts of the public opinion into an ideological crisis. (I have written elsewhere why I think this is not a general crisis of capitalism but a response to the decline of western economic and political power.) However, the question  of durability or of non-permanency of capitalism has, unlike in the years after the fall of communism, reentered the public discourse. In many ways, in the West, the situation is returning to the 1970s or earlier when the ideas of alternative socio-economic systems were hotly debated. This is something that had disappeared in the next several decades driven away by neoliberalism in economics, the collapse of Soviet socialism, and the imposition of the pensée unique.

Now, things are changing, and understandably many people bring their own ideas about how capitalism can be “transcended”, that is replaced by a different socio-economic system. I want here to highlight three different ways in which this subject has recently been addressed.

In a new paper ”What is socialism today: Conceptions of a cooperative economy”, John Roemer starts with three essential pillars of all economic systems: an ethos of economic behavior, an ethic of distributive justice, and a set of property relations. In capitalism the three pillars are (1)  individualistic ethos, (2) laissez-faire (no redistribution), and (3) privately owned means of production with profit accruing to capitalists. Until now, Roemer argues, all attempts to transcend capitalism focused on element No. 3, replacing privately owned capital with state or socially (collectively) owned capital. They have all failed.

Instead, our emphasis should be, according to Roemer,  on developing solidaristic ethos. Using the terminology from the game theory, Roemer contrasts Nashian ethos where each individual behaves as to maximize his or her  gain (and which in some cases, like the prisoner dilemma, may lead to perverse outcomes) and the Kantian ethos where we behave in the way in which we wish that everybody else would behave. This is a form of a golden rule (behave towards the others the way you wish that they behaved toward you), or, in more narrowly economic language, we try to internalize (account for) the behavior of everybody else.

In a presentation given recently at the Graduate Center CUNY in New York, Roemer gave the example of the “tragedy of the commons” where Nashian (narrowly profit-motivated individuals) maximize own fishing with the result that eventually no fish remain vs. a Kantian type of solidaristic behavior where one needs to think that if he increases his fishing everybody else would do the same. The person would thus “internalize” the behavior of others and presumably avoid the tragedy of the commons.

Roemer argues that, as societies get richer and as a conscious effort is made, the percentage of “Kantians” would increase compared to the “Nashians” and we would gradually move toward more solidaristic and cooperative societies. A nice example that Roemer used to buttress his case is the increasing attention given to environment where many people make an extra effort to adjust own consumption or sort different types of trash even if neither is monitorable and defections are costless. Still many do it the way they wished everybody else did it too.

A different way of “transcending capitalism” was recently proposed in Piketty’s new book “Capital and Ideology”. In the last part of the book,  Piketty, after reviewing on some 800 pages, the ways in which various hierarchical and property relations that seem abhorrent to us today (slavery, patriarchy, racism, serfdom etc.) have been ideologically justified, argues for ending the ideology of private property fetishism.  In terms of Roemer’s taxonomy, Piketty is clearly back to the pillar No. 3 but unlike Marxists and the Soviets Piketty does not require a dogmatic thorough-going elimination of all private property but looks at the ways in which the economic power held by property holders could be limited. To that objective, he deploys a radical yet realistic proposal whereby all enterprises after a certain size would have obligatory workers’ shareholding with workers holding 50% of the shares, and no single capitalist (regardless of the amount of capital he has invested in the company) could hold more than one-tenth of the capitalist half of shares. (Thus even the largest owner would be limited to 5% of total voting power). Piketty would allow small enterprises to be managed as they are now with capitalists holding the full power and workers being a hired labor, but as soon as such enterprises would go over the threshold, obligatory workers’ shareholding would kick in.

This two-tier system at the production level would be combined with the system of the so-called “temporary ownership” consisting of severe annual taxation of private wealth and progressive taxation of inheritance.  

The aim of the two systems (at the production stage and fiscal) is to fundamentally alter the relations of production in favor of labor and to limit the accumulation of private wealth. The latter will not only change levels of inequality that currently exist but would structurally constrain  the ability of the rich to control the political process and to transmit their wealth across generations. It would thus significantly change inter-generational mobility. But even more importantly, perhaps, it would change the intra-enterprise hierarchical relations between owners and workers.

(Piketty’s idea have been criticized---see here—for being un-Marxist in the sense that they do not go beyond the logic of capital or social-democracy, do not dispense with all power relations derived from ownership, and that his concept of social change is idealistic, as opposed to materialistic.)

A third way to envisage the change in the modern capitalism is somewhat different and I briefly mention it at the end of “Capitalism, Alone”. It is materialistic and grounded In the “objective” relationship between the two factors of production (labor and capital), or more exactly in their relative scarcities. It is based on a standard Marx-Weber tripartite definition of capitalism (used in the book): (a) production is carried using privately-owned means of production, (b)  labor is legally free but hired (that is, the entrepreneurial function is exercised by owners), and (c) coordination of economic decision-making is decentralized. Now, as I argue in “Capitalism, Alone”, the current apotheosis of capitalism is largely due to the weakening power of labor, brought about by the doubling of the global labor force that works under capitalist conditions following the transition to capitalism of the Soviet-bloc countries, China, Vietnam and India. Furthermore, the digital capitalism of today has enabled commercialization (“commodification”) of many activities that have never been commercialized before and has thus made further inroads into our private life. The dominion of capitalism has become extended both geographically (to encompass the entire globe) and “internally” to move to our individual private sphere.

But if the underlying relations of relative scarcities between labor and capital change in this century or the next, if the world population reaches its peak and remains there (as all projections indicate) and if the capital stock keeps on increasing, we might face an entirely different situation between capital and labor—very much the reverse of the one the world is facing since 1990. The relative abundance of capital may allow individuals to become entrepreneurs by simply borrowing capital and not letting the suppliers of funds have a decisive role in management. This is what we currently observe in the start-up world. It might seem not important, but it is: the agency which is now almost exclusively vested in capitalists would be transferred to “workers”. The component (b) of the standard Marx-Weber definition of capitalism –the existence of wage labor—would disappear. The system would still maintain the private ownership of the means of production and decentralized coordination: it would  be a market economy, but it would not be a capitalist market economy.

This “transcending” would be different from the other two. Unlike Roemer, it would not rely on the change in our ethos, and unlike Piketty, it would not depend on constructivist change in the rules but would arise “organically” from the changed relationship between the two factors of production. Being “organic” would make it stronger and more durable.

Kleptocracy and kakistocracy in the 1990s Russia

Almost all books on Russia are depressing. Paul Klebnikov’s (Forbes Russia editor) brilliant, extremely well-documented and eye-opening “Godfather of the Kremlin”(published in 2000) is no exception. Although it is focused on Berezovsky’s “career”, it is much more than that: it is about how Russia transited from state socialism, not to what in the “pensée unique” media was called market economy, but to a rule of kleptocrats and the mob.  

The book covers the entire de facto and formal Yeltsin’s rule, from the failed Communist coup in August 1990 to Putin’s election in 2000. The judgment on the Yeltsin’s rule is severe and just: “For the Russian people the Yelstin era was the biggest disaster (economically, socially and demographically) since the Nazi invasion in 1941” (p. 320).

What actually happened was the privatization of all government functions and the transfer of wealth to which over decades, if not a century, millions of people contributed, often having been paid miserable wages. That wealth created by millions and owned by the state was then frittered away or given to several hundred individuals, most of them with no merit except for the ability to manipulate others, to know how to run private militias, and to be free of any moral scruple. They thus  became immensely wealthy.

To his credit Klebnikov distinguishes between kleptocrats who wished to at least create something, that is to maintain or create running enterprises, from the kleptocrats whose objective was to destroy as many enterprises as possible.  Among the first group he puts Vadit Alekperov, then and now the manager and part-owner of Lukoil, and even in part Gusinski (currently in exile in Israel), and in the second category, Berezovsky, Abramovich and many others, only slightly less evil or less successful in their ill intentions.

Klebnikov very clearly explains the modus operandi of the destructors, mostly through Berezovsky’s actions and his direct statements  collected in the interviews. The destructors’ approach was simple, efficient and apparently never imagined by the hundreds of creative and highly paid US and Western “advisers”  to the Yeltsin government. Instead of privatization being  used to increase enterprise efficiency as these ingenues believed, it was used by Berezovsky and others to destroy the enterprises. The first and the most important step was “privatization of profits”. Berezovsky discovered it in the early 1990s when he “raided” a large automaker Avtovaz and he kept on applying it even since.

The approach consists in coopting the management of the target companies either through financial inducement (division of the loot) or through threats which, if not operative, lead in many cases to reluctant managers suddenly drowning in rivers or jumping from the windows. Once the management is coopted, it intentionally makes decisions that go against the interest of the company and its workers. In the case of Berezovsky and Avtovaz it meant that the company sold its cars at less than the production cost to auto dealerships established by Berezovsky. Very simple: if the production cost of a car is 100, you sell it to Berezovsky for 50; he then sells it to customers for 200 (market price). He takes 150 and divides it with you; the company loses money, fires people, goes bankrupt, stops production and is auctioned off for peanuts. If you believe there is still something worth looting you buy it for almost nothing;  if not, you just move to another company to destroy.

Berezovsky applied the same trick over and over again. In the case of Aeroflot (which he “conquered” thanks to Yeltsin’s daughter), he created a number of subsidiaries which ostensibly managed Aeroflot foreign exchange flow. They managed it in a very particular way. You paid $100 for your ticket. That money, instead of going straight to the  Aeroflot account would instead go to Berezovsky’s who would then lend (yes, lend) $100 to Aeroflot at interest rates of 30% per year and moreover assess a “management fee”. Aeroflot was lucky to have received $1 out of $100 that you paid for the ticket. At times, Aeroflot would actually own money  to Berezovsky.

Berezovsky and Khodorkovsky applied the same approach to the Russian government. They would be allocated, under various pretenses, government money which they would onlend to government at usurious rates.

The focus on Berezovsky is only one part of the book. It is the whole system that is indicted. The alliances and enmities were formed from case-to-case and while a group of oligarchs were together on one deal, they would fall out in the next and, then in some cases, commission contract killings. What is today at times represented as a free-wheeling Yeltsin “democracy” was, as Klebnikov documents detail-by-detail, gun fights between the  “siloviki” of the various kleptocrats, or their mutual accusations  aired on the TV channels they controlled.

But we shouldn’t forget the pollical enablers of kleptocracy. The key was Yeltsin (personally not corrupted) and his family and close environment (thoroughly corrupt). The origin of kleptocracy predates the famous loans-for-shares deal in 1995-96. It goes back to the last years of the Gorbachev reforms, but then accelerates under Yeltsin, fueled in large part by the hysterical fear of Communists’ return to power. Zyuganov was no Stalin but in most of Russian and US media he was portrayed as such. This gave a license to “reformers” to privatize as soon as possible, giving things away practically for free and stimulating looting  in the correct expectations that (a) the new owners of the looted property will use their wealth and control of the media to twist the election results in  favor of Yeltsin and, (b) once property has either been destroyed or privatized with money stashed abroad, there would be nothing for Zyuganov’s communists, even if they were to come to power, to nationalize. This was the political—and absolutely crucial—underpinning to kleptocratic privatization. Without that we cannot understand why a country would want to destroy itself.

When electoral spinning was insufficient, stronger tactics were used. Yeltsin disbanded the Parliament when it began impeachment proceedings against him and eventually bombed the deputes out. I doubt The Washington Post today would support the same “democratic approach” if used by Trump.  But it did for Yeltsin in 1993.

Klebnikov is very critical of “young reformers”. I do not think he is fully right there because Gaidar, in early 1992, had no option but to liberalize prices lest the county falls into famine—so horrendous were the conditions at the time. Klebnikov  disagrees with Chubais, the mastermind of privatization, but he gives him credit for having realized, after the 1996 election, that the government needed to change course, stop the lawlessness of Berezovsky and friends, and arrest them.  

This is not a history with shades of grey. This is history with darkness and a few, far between, points of light: Yavlinsky, the perennial oppositionist; Gromov, the gruff general; Primakov, the short-lived Prime Minister.

Epilogue. Berezovsky, who managed to manipulate everybody, eventually manipulated Yeltsin into anointing Putin as his heir. But hubris caught with him: he thought that Putin will be at his beck-and-call. It turned out differently: Berezovsky had to flee to England, where after squandering much of his wealth, he lost the remainder in the most expensive lawsuit ever filed against his erstwhile associate Roman Abramovich. He was found hanged in a mansion where his former wife allowed him to live rent-free.

Much more sadly, Paul Klebnikov, a brilliant journalist and economic historian (I ran into Klebnikov's writings first time when I found his Ph D dissertation on Stolypin reforms here) was murdered on a Moscow street in 2004, when an assassin fired nine bullets in him. It is especially poignant to think that Klebnikov in describing many political and financially-motivated murders of the 1990s unwittingly described his own too: cause of murder, unknown; assassins, unknown. Case closed.