Capitalist versus socialist state intervention in the economy

By Martin Saatdjian

October 1, 2008 – Venezelanalysis – The current financial crisis reveals the first symptoms of a major, perhaps revolutionary, socioeconomic change in world affairs. Much has been said how, after the collapse of the Berlin Wall, capitalism overshadowed socialism and "the end of history" was decreed in much of the intellectual world. Not surprisingly, less has been mentioned that while socialism was dying in Europe, it was also blossoming in Latin America. In 1989, events known as El Caracazo – major protests in Venezuela against neoliberalism and the "Washington Consensus" aimed at reducing the role of the state in the economy – erupted. The election of Hugo Chavez as president of Venezuela in 1998 was a reaction not only to people's dislike [of neoliberalism] and the failure of neoliberalism, but also to the strong repression that followed the 1989 protests.

Today most people watch with close attention how the biggest economy on Earth is on the verge of a major crisis. However, it is not yet known what the impact will be for the American people or, more importantly, for the rest of the world. Certainly, many questions remain unanswered -- not only for those in line with the Bush administration, but especially for the US working class. It is this section of US society that pays the price for the crisis, via foreclosures and job lay-offs (which, for many, translates into losing necessary health insurance). Also, they will carry the burden of the so-called "bailout" package that the Bush administration has proposed in the hope of preventing a major economic collapse. This package fails to acknowledge that while the US working class carries the burden, it will get nothing in return.

Of course it is a different story for the speculators, corporate managers and major shareholders. These privileged and exclusive segments of US society will benefit from the money of taxpayers, earned by their long working hours, declining wages and worsening labor conditions – reaching an astronomical US$700 billion. This amount of money the Bush administration plans to insert into the US economy is surprising.

Just to give an idea of what it amounts to: the sum of the entire economic activity for an entire year (gross domestic product) of Venezuela, Colombia and Cuba combined. The GDP of the whole African continent for the year 2007 reached $2150 billion.[1] This means, that the Bush administration bailout plan represents roughly one-third of the entire African continent's GDP.

US election

A particular aspect of this economic crisis is the context in which it occurs, just a few weeks before the presidential election in the United States. The Bush administration's decline in approval ratings is likely to affect its party's presidential nominee, John McCain. Despite huge efforts, this candidate has tried to distance himself from Bush, but the current administration's colossal failure to guarantee peace in the Middle East, along with its stubborn attitude towards multilateralism and global warming, leave many people wondering if McCain will follow in the footsteps of George W. Bush. On the other hand, Democratic candidate Barack Obama may use the present economic crisis to his advantage, with hopes of increasing his support among the working class and by fomenting nostalgia for the Clinton years – a reminder of better economic times.

Apart from the two candidates' political rhetoric, the truth is that both political parties bear a huge responsibility for the current deteriorating economic condition. Both parties have been promoters of neoliberal economic policies, privatisation and free trade agreements. In addition to that, both parties have always sought the use of public funds for the benefit of their rich campaign contributors and in the interests of lobbyists in Washington DC. This is why Bush's proposed bailout plan should only surprise people by its absurd amount – not because it contradicts the recurrent “invisible hand [of the market] theory'', which has remained consistent throughout recent capitalist history. The root of the problem regarding the current economic crisis is not the slight difference (if any) between the Democrats and Republicans; rather, it is the nature by which the economic system sustains itself.

Recently, during the 63rd session of the United Nations General Assembly, the president of Argentina, Cristina Fernandez, made a very interesting comment regarding the Bush administration's proposed bailout plan. According to her, "The most formidable state intervention that there's memory of comes precisely from the place that had told us that the state wasn't necessary, in the context, moreover, of a fiscal and commercial deficit." [2].

Most likely, she was referring not only to the bailout plan to revive the US economy, but also to US federal government's purchase of companies that declared bankruptcy as a result of the current economic crisis.  Once again, the hard working money of the working class and collected by the federal government via payments of taxes are used by the Bush administration against the interests of the people and for the protection of the wealthiest.

Capitalist and socialist interventions

Here, precisely, is where difference can be drawn between intervention in the economy by the Bush administration (capitalist state intervention) and the recent announcements by Latin American governments, such as Venezuela, Ecuador and Bolivia, of nationalisations and the strengthening of publicly owned companies (socialist state intervention). It's not so much that capitalists are against the intervention of the state; they just want the intervention to strengthen the wealth and power of the richest people, this time by $700 billion dollars.

As Noam Chomsky correctly mentioned in April 13, 1996, regarding the contradictions between words and deeds in regards to the “free market'':

[T]he principle of really existing free market theory is: free markets are fine for you, but not for me. That's, again, near a universal. So you – whoever you may be – you have to learn responsibility, and be subjected to market discipline, it's good for your character, it's tough love ... But me, I need the nanny State, to protect me from market discipline, so that I'll be able to rant and rave about the marvels of the free market, while I'm getting properly subsidized and defended by everyone else, through the nanny State. And also, this has to be risk-free. So I'm perfectly willing to make profits, but I don't want to take risks. If anything goes wrong, you bail me out. So, if Third World debt gets out of control, you socialize it. It's not the problem of the banks that made the money. When the S&Ls collapse, you know, same thing. The public bails them out. When American investment firms get into trouble because the Mexican bubble bursts, you bail out Goldman Sachs. [3]

On the other hand, the socialist state intervention prioritises the most basic needs of people. This is the type of controlled and planned intervention that has been carried out by Hugo Chavez in Venezuela, while at the same time maximising democracy, political consciousness and the participation of the people in managing their own affairs. The enterprises that have been nationalised in Venezuela, such as the main communications company (CANTV), the iron and steel corporation SIDOR and one of the main banks (Bank of Venezuela), are highly profitable enterprises. In the case of CANTV, its nationalisation cost the Venezuelan state roughly $1.6 billion; however, after a full year of operation this company earned nearly $400 million in net profits. At this pace, the Venezuelan state will recover its initial investment is just three years of operations. The resources that previously went into the pockets of rich people or became capital flight, are now being used by the government of Hugo Chavez to finance public healthcare projects that are highly beneficial to the neediest people.

It is worth remembering that at the peak of neoliberalism in Latin America, during the 1990s, highly profitable publicly owned corporations were handed over to the private sector. One example was Venezuela's national oil company (PDVSA). Although this company was never fully privatised, previous governments before Chavez welcomed transnational oil companies by signing "Conjuncture Agreements" with PDVSA that would allow them to extract oil by giving a small portion back to the Venezuelan state, 16% at the most. Thanks to a new Hydrocarbons Law drafted by the government of Hugo Chavez, these "Conjuncture Agreements" were replaced by mixed ventures in which PDVSA will have the majority stake. Long before that, President Chavez was widely criticised by the administration of US President Bill for a trip made to OPEC countries in an effort to recover the price of oil, which was $8 a barrel at the time.

Venezuelan people benefit, not the rich

Thanks to the Chavez government, PDVSA has been strengthened and its revenue has allowed the Venezuelan state to finance countless social projects, which include: primary medical care access for the entire population, along with secondary- and tertiary-level medical care facilities free of charge; the complete eradication of illiteracy; the building of new schools, hospitals, bridges and roads, the enhancement of public transportation and the development of a huge train transportation system across the whole country. At the same time, the health of the economy is probably its best shape ever, with international reserves and economic growth at its greatest levels, and the lowest unemployment rate in the history of Venezuela.

Certainly the recent hike in the price of oil has factored favourably for the Venezuelan economy.  Nevertheless, this increment in the price of oil has been accompanied by the greatest weakening of the US dollar, which in real terms makes the price similar to the oil price hikes of 1981. However, back then the Venezuelan state was in the hands of capitalist and corrupt politicians and PDVSA was managed as a transnational corporation, rather than as a vital institution for the development and growth of the economy.

As previously mentioned, today PDVSA has a greater participation in the production and export of Venezuelan oil than ever before and royalty increases for transnational corporations have allowed the Venezuelan state to collect a greater portion of profits than ever. Additionally, according to the Central Bank of Venezuela, the Venezuelan economy has grown not only in the oil sector but also in the communications, construction and service sectors.

Clearly, how Venezuela and the US allocate public funds differs greatly. While the US government has abandoned the interests of its own people with its careless healthcare policies, dwindling education funding, increased military spending and lowered taxes for the highest income brackets, the Venezuelan government has sought the careful use of public funds for developing an inclusive society, eradicating poverty, enhancing education and heathcare facilities, and fostering the growth of a productive economy. All of which has been carried out by fomenting greater democracy and the participation of the people in all aspects of politics

[Martin Saatdjian is third secretary at the Ministry of Foreign Affairs of the Bolivarian Republic of Venezuela.]

Notes

[1] Figures gathered at: https://www.cia.gov/library/publications/the-world-factbook/

[2] Entire speech available at: http://www.un.org/ga/63/generaldebate/pdf/argentina_es.pdf

[3] Chomsky (1996). Obtained from: http://www.un.org/ga/63/generaldebate/pdf/argentina_es.pdf