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Okay, time to wake up. We've been dreaming. The current crisis is not going to usher in a democratic socialism, however desirable such an outcome might be.
But it might bring us a few steps closer. During the Savings and Loan crisis of the late 1980s, the government's Resolution Trust Corporation wound up owning almost all the Savings and Loan Associations in America. That is to say, they were nationalized (although no one used that word). But we didn't keep them. Taxpayers absorbed the losses, then the good parts were sold back to the private sector at bargain prices. This time around we (as citizens) are going to own a lot of financial institutions--if we insist on an ownership stake in exchange for the bailout. It's our money, so let's insist on ownership. A fair number of economists agree. Krugman notes, "Government takeovers may be the only way to get the financial system working again." ["Crisis Endgame"]. Dean Baker, co-director of the Center for Economic and Policy Research, wants the government to insist on an equity stake in any company whose bad assets it buys ["Progressive Conditions for a Bailout," Truthout.org, 9/20/08]. Willem Buier acknowledges that this would be a viable solution, even though "it would take the socialization of the U.S. financial system yet a step further"- than he would like. ["The Paulson Plan: A Useful First Step But Nowhere Near Enough,"- www.voxeu.org, posted 9/25/08.] (He prefers a mandatory debt for equity conversions.)
There will be serious resistance to government's gaining a sufficient ownership stake in a lot of financial institutions to control them, but that resistance may not succeed. If it doesn't, if the government comes to own these institutions, let's fight to keep them. Let's not give them back. It's obscene to socialize losses but privatize gains. Let's restructure these institutions so that they can fulfill their basic mission effectively, which is to provide credit to worthy businesses in an open, transparent fashion. Let's make them democratically accountable. It's not socialism, but it's not nothing. The government will be in position to do some good things.
One good thing: It can put a cap on the pay of the executives. Dean Baker urges a $2 million dollar cap. Given that the President of the United States and the Chief Justice of the Supreme Court make only $400,000, that seems a tad too generous. To be sure, these guys have been used to making a lot, lot more, but they are not likely to find greener pastures elsewhere.
Such a cap might help to change the pattern of inequality that has developed over the last three decades, for, as Baker observes, "executives at non-financial companies look at the pay on Wall Street and use this as a basis for demanding outrageous pay packages for themselves as well." (It's worth noting that the ratio of CEO pay in the U.S. to that of the average worker is 475. It's 20 in Canada, 15 in France, 11 in Japan.)
Another good thing: If the government, takes control of these firms, it will come into possession of lot of mortgages in various stages of delinquency. It can try to resolve them in a humane fashion. Priority can be given to allow people to remain in their homes, either as renters, paying fair-market rent, or as the holders of renegotiated mortgages.
This is the fight we are in right now. It's not a fight for socialism--not yet--but it's an important fight. It might be one we can win. Opposition to the Paulson plan is growing. Disgust with Wall Street is growing. Questions are being raised that haven't been raised so publicly in a long time. Government control will be resisted mightily by the Wall Street titans, but the giants might not prevail. And if they do win this battle, well, the war isn't over. They will likely screw things up even more next time around. We might take as our own Milton Friedman's credo:
"That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable." (Capitalism and Freedom, 1982 Preface)
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David Schweickart is Professor of Philosophy at Loyola University in Chicago. He is the author of several books on capitalism, political economy and market socialism, the latest of which is After Capitalism, Rowman and Littlefield Publishers. His ideas are widely discussed in China, Venezuela, Argentina and other areas active in the 'solidarity economy' and radical transitions.
