In US capitalism’s greatest financial crisis since the 1930s Depression, status-quo ideology swirls. The goal is to keep this crisis under control, to prevent it from challenging capitalism itself. One method is to keep public debate from raising the issue of whether and how class changes — basic economic system changes — might be the best “solution.” Right, center, and even most left commentators exert that ideological control, some consciously and some not. Hence the debates where those demanding “more or better government regulation” of financial markets shout down those who still “have more confidence in private enterprise and free markets.” Both sides limit the public discussion to more vs less state intervention to “save the economy.” Then too we have quarrels over details of state intervention: politicians “want to help foreclosure victims too” or “want to limit financiers’ pay packages” or want to “weed out bad apples in the finance industry” while spokespersons of various financial enterprises struggle to shape the details to their particular interests.
We need to recall that crises always generate “solutions” — like all those above — that preserve the basic system. We also need to advance alternatives not subordinated to the status quo, that open up the discussion by showing the risks of not changing the system and the virtues of doing so.
Let’s begin with the issue of government regulation. Note first that corporations like investment banks, commercial banks, stock and mortgage brokerages, and so on are all run by boards of directors. These boards — usually numbering 15 to 25 people — make all basic corporate decisions. They hire the millions who do the work, and they tell these employees what to do with the tools and equipment they provide. Today’s financial mess and economic crisis are first and foremost results of decisions by these boards of directors.
In previous economic crises — especially the 1930s Depression — financial corporations were subjected to government laws and regulations passed under pressure of mass suffering. However, the politicians who wrote those laws and regulations soon thereafter allowed financial corporations to evade them, then later to amend them, and finally to eliminate many of them. Politicians accommodated financial corporations because they were major contributors to their campaigns and major supports of their political careers or because they believed government intervention to always be “bad” for economic wellbeing. Financial corporations’ directors used profits also to hire armies of lobbyists who shaped every government step in deciding whether and how to enforce laws, rewrite regulations, etc. Thus, US regulators depended increasingly on the financial corporations they supposedly regulated. Nor should we forget the profits financial corporations have always devoted to “public relations” — costly campaigns to undermine the very idea of government regulation in school curricula, mass media, politics, and across our culture. So now we return to square one as deregulated finance — having done its job of making billions for the industry — produces another crisis and another set of calls for regulation.
In short, arguing over whether to leave finance to financial corporations or to have government regulate them is no real debate. In the US, financial corporations’ boards of directors have dominated the operations of the financial industries either way. Since all regulations imposed on US financial enterprises have left their boards of directors as sole receivers and distributors of all profits, the boards used them to evade or gut the regulations. What the right, center, and left now debate is merely another set of regulations all of which again leave untouched the profits accruing to financial companies’ boards of directors.
Finance has been grossly mismanaged by the institution of the corporation under deregulation: hence the crisis. Responding to this fact requires more than government reregulation. We need also to change the corporation in basic ways that can avoid or correct financial mismanagement. Nothing could better assure that new and tougher government regulations might work this time than making the workers inside financial corporations real partners with the government in monitoring and enforcing properly regulated financial activities.
To that end, we propose a radical restructuring of financial corporations. Their employees at all levels must become major participants in decision-making activity. That means elevating workers to significant membership on boards of directors and all board committees. Only then can employees know corporate realities and so make sure financial activities conform to the spirit and letter of regulations. Only then will inappropriate activities get reported to and investigated by regulators long before they accumulate into today’s sort of crisis. Masses of employees institutionally empowered inside corporate decision-making are the nation’s best hope for a better, fairer financial system than we have had to date.
In short, if the US government — ultimately the tax-payers — will now pay the costs and take the risks to bail out a failed financial system, then it has the right and obligation to change that system. We need such changes to avoid repeating the failures of the past. These changes would also introduce some democracy inside the corporation — where it has been excluded for too long and with disastrous consequences.
The current debates also fail to face how the underlying economy helped produce the financial mess. Real wages stopped rising in the US in the 1970s, yet the American psyche and self-image, subject to relentless advertising, was committed to rising consumption. To enable that, workers with flat wages had to borrow to afford rising consumption. For the last 30 years loans replaced wages, but rising consumer debt introduces new risks and dangers. If, simultaneously, politicians use state borrowing to avoid taxing the rich while providing vast corporate subsidies and waging endless wars, the debt problems mushroom. Aggressive, deregulated financial companies grabbed the resulting “market opportunity” by devising ever more complex, hidden, and dangerously risky ways to profit hugely from the social debt bubble.
A sub-prime economy produced sub-prime wages, sub-prime borrowers, sub-prime lenders, and sub-prime government regulation. Bailing out and reregulating financiers — the current plan being debated across the nation — does far too little too late. The proposal above exemplifies the much bigger and more basic changes that now need active public discussion.
Rick Wolff is Professor of Economics at University of Massachusetts at Amherst. He is the author of many books and articles, including (with Stephen Resnick) Class Theory and History: Capitalism and Communism in the U.S.S.R. (Routledge, 2002) and (with Stephen Resnick) New Departures in Marxian Theory (Routledge, 2006).