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LOOKING AHEAD
26.10.2008

October 17, 2008 (the date of publication in Russian)

Maxim Kalashnikov

THE REVENGE OF ECONOMIC PLANNING?

Mark Golansky's old forecast is coming true in the times of the New Great Depression

A GLANCE FROM THE "GOLANSKY HEIGHTS"

The speed of etatization of economy in the West and in a number of emerging economies is striking. Governments are de facto nationalizing banks and mortgage companies, and pouring huge amounts of liquidity into private corporations in a style of socialist distribution. Auto production in America and Europe receives state loans. Is that only the beginning?

The post-industrial West is likely to boost re-industrialization and build a planned economy. This pattern reminds of USSR's priority investments in the weakest branches of economy – particularly, agroindustry and transport. However, the US Treasury is pouring money into the fruitless financial sector. These expenses are likely to evaporate without any effect for the population. Therefore, the United States will have to invest in real economy. The decision to disburse $50bln to auto industry is almost a chose jug. Russian corporations are queuing for state assistance as well. Oil and ore-extracting companies are going to be followed by auto producers. Is that only the beginning?

We are facing a revival of state capitalism Ц both in the West and at home. The founder of the Soviet state once mentioned that the way from capitalism and socialism passes through an intermediate station: state capitalism. Today, it is obvious that the liberal monetarist policies that gave birth to speculative quasi-capitalism, known as post-industrialism, is a complete failure. Therefore, the West will have to re-industrialize its economies, creating a new model that will reproduce the dirigist, semi-socialist practice of 1920-1930s. They will have to introduce powerful state regulation with a strong planning effort. Welcome the USSR!

In his 1992 article entitled "New Tendencies in World Economy", Russian scientist Mark Golansky predicted that after 2010, the West would have to transcend to a command economy, with socialized property and centralized redistribution of resources. The same author foresaw a collapse of market reforms in Russia. His conclusions were based on the assumption that the lack of resources was going to cause an environmental disaster.

Golansky urged to prevent the looming biospheric catastrophe by means of reducing population growth and re-orientation of technological progress from economic productivity to the performance index, i.e. the released natural energy per time span or at least prevention of its decline. He expected the mankind to victimize the basic capitalist principle of expansion of human activity for the purpose of increasing its efficiency.

The author believed that the environmental crisis was likely to undermine the whole system of economic profitability and reverse the income into losses. Under these circumstances, the capitalist motivation, focused on profit, is going to lose its attractiveness and become an anachronism, wrote Golansky. According to his forecast, capitalism is likely to be replaced with a global system of planned economy capable to exist with a zero income and to cope with losses. "After 2010, we are going to face a long-time recession. The amount of production per capita is likely to reduce to the level of 1980. During the period until 2015, labor productivity is likely to grow, while the share of economy in the total activity of the global community is going to reduce. The reduction of the share of economic activity, however, would require a higher discipline than that suggested by the capitalist system. In a socialized community, the state will have to rely upon ideology. The character of this ideology is disputable, but it is obviously going to be rather monistic than pluralistic".

The author derives his conclusions from the assumption that the transition from capitalism to socialism, initiated in Soviet Russia by the Bolshevist government, was not a mistake but an effort undertaken too early, in the period when the capitalist order was still on its rise. Generally, according to the author, the capitalist system is typical for the time of rapid expansion and development of productive forces, while socialism is the inevitable next stage, corresponding with the times of maturity and qualitative transformation of the productive forces.

Therefore, says Golansky, Soviet-time "real socialism" should not be blamed for lack of attention to environmental issues: it was just unprepared to address the relevant problems, being focused on urgent tasks of growth. The coercive implementation of socialism in the USSR and the backward East European companies in the time when the West was achieving its goals by using benefits of free entrepreneurship only proves that the transition was premature, though not incorrect.

Golansky and his co-authors predicted the arrival of a new global economic system that would require domination of public ownership, as well as the capability to guarantee a sustainable level of life for the majority. For this purpose, a socialist system, more focused on environmental priorities, is more adequate. Golansky believed that the global transition to this new system would emerge as a "natural" consequence of a devastating crisis of the existing system of international economy and trade.

After the crisis, the average industrial output is unlikely to exceed its present level, the author argued. Prosperity will be unavailable by definition. The society is likely to face shortage of a range of basic consumer goods. Thus, the global community would have to guarantee a subsistence minimum, and to provide a certain amount of basic goods to prevent massive famine. For this period, the whole global economic system would require a planned economy.

Therefore, the recipe of introducing free market relations in the system that kept resisting to this reform, and the dismantlement of economic planning, undertaken by the Russian government in early 1990s, was a new and malicious mistake. "This careless approach to the problem was repaid with high expenses. The republics of the former USSR underwent economic deterioration, comparable to the times of war. "Shock therapy" was inadequate to reality. Meanwhile, "hopes for self-emergence and self-development of industries on the remains of the USSR are rather illusory, as well as the belief of the leaders of post-Soviet states to develop comparable or more efficient sovereign economies, especially in countries with obsolete industrial facilities", the author warned.

Anticipating a decline of global productivity after 1995 and the supposed collapse of global production after 2010 due to exhaustion of natural resources, Golansky predicted "the end of economic self-development and arrival of the era of regulated economy". This inevitable shift obviously suggests abstinence from self-regulation and transition towards an "administrative-command" system of economic management. These means, according to Golansky, would re-orient scientific and technological progress in the interests of the biosphere.

 

THE END OF THE "INSURRECTION OF ELITES"

Golansky's hypothesis that the global crisis would emerge directly from insufficiency of natural resources was a misjudgment. However, he very precisely foresaw the timing of the global crisis and its immediate social implications. The picture he described 16 years ago is quite applicable to the world that is going to emerge after the end of the Great Depression Ц as the outcome of the "insurrection of elites", or rather the "insurrection of the rich against the masses" that started in 1970s, resulting today in a grim and disgraceful fiasco Ц a natural result of "post-industrialist" policies and the reign of the liberal ultra-capitalist model that reigned for 1.5 years.

The implications of this "post-industrial pogrom" deprived the developed countries of the West from the major share of industry, outsourced primarily to China and other countries of Asia.

The consumerist psychology, along with the decline of the well-being, has reduced the life expectancy of the Europeans, while the unrestricted increase of production of "short-time" goods and services predetermined the shortage of natural resources, ensuing not from exhaustion of reserves but from the investments in virtual "economy". Meanwhile, the West's de-industrialization caused a swift decline of quality of education, stagnation in science and technological creativity. Capitals flowed into useless "financial instruments", their mass rapidly exceeding the equivalent of the real economy. Eventually, the United States encountered a lack of qualified engineering cadres and physical exhaustion of infrastructure Ц as the rush for incomes reduced investments into these physical assets, while the temptation with unbridled self- enrichment caused a flight of the younger generation from science and technologies. These processes increased the social stratification of Americans, and the erosion of the middle class that had been regarded as a bulwark of democracy and stability.

Opposing the masses and being reluctant to share the incomes with the majority of people, the Western establishment in fact acted against its own compatriots and approximated the current crisis.

The West will have to seek a way out of the New Great Depression, literally, with blood and sweat. In order to avoid strategic dependence from China, the West will have to re-establish the destroyed links of production chains, to build new plants and factories, creating new jobs for the younger generation. These new jobs are likely to be more efficient and energy-saving than before, but they are to be built. Before that, the Americans will have to restrict personal consumption and use time for education and work. The United States will have to reduce expenses for pensioners and re-direct these resources for the revival of the battered industry and stimulation of the birth rate. The United States will have to introduce new taxes for the rich, to prevent capital flight, to urge business to invest in new industries and related scientific and economic programs.

Many of the rich Russians are likely to be employed in the newly-emerging state corporations and state programs. However, this expected shift is not likely to free the rich Russians from their obligations. This process, increasing the possibilities of companies, is likely to eliminate the current globalization paradigm, and fortify national powers.

The signs of the "counter-insurrection" are now multiplying. The presidential elections in the United States are favorable for Barack Obama, who is becoming the leader of the impoverished and disappointed middle class of America, and attracts hopes of those who live on social allowances. Obama has gained popularity due to his slogan of a progressive income tax, reduction of spending for military needs and consolidation of state regulation. This is quite natural, as the number of poor Americans has lately increased till to 37 million, while the amount of savings is smaller than that in late 1930s. Obama's economic plans suggest a sharp increase of state expenses for medical insurance ($65 billion), alternative energy production ($15 billion), support of households ($20 billion) and public infrastructure ($60 billion).

Obama insists to allocate $10 billion for students of colleges in exchange for public works, and $10 billion more for access to universal secondary education. This reminds Roosevelt's New Deal of late 1920s. At the same time, Obama relies upon populist measures like providing stat-subsided medical insurance to 12 million illegal emigrants. His opponents warn that this political correctness may turn a sharp increase of prices for medical services, and require huge costs for its regulation.

Obama gained even more popularity by proposing to "expropriate the expropriators" by increasing the income tax for families earning over $250 million per year. According to his calculations, this measure would affect only 3% of the Americans. Meanwhile, Obama's opponents assert that this initiative is likely to affect the majority, as the further decline of production would force local authorities to raise other taxes; in states like California and New York, taxing is about to exceed 60% of the income. Thus, according to the critics, America may be plunged back into the 1970s.

Certainly, Obama may drown the solution in populism. Still, the fact that the socialist agenda is now acceptable for masses of American population, with an undoubted and powerful effect in the political sphere, is of great importance. The population is sick and tired of domination of ultra-liberalism in economic policy Ц not only in post-Soviet states.

The implementation of the policy of state capitalism, with a further transition towards socialism, may trigger nascence of new dictatorial regimes, as it was in 1930s. This suggests rise of nationalism and paroxysms of new wars for the resources and the vital space under the pretext of mobilization against the enemy. The mankind is facing a new permanent state of emergency.

 

THE CLASH OF "ECONOMIC RACES"

The first signs of the possible "American-style dictatorship" are already visible. Ordinary Americans desire literal sacrifice of the filthy rich financiers responsible for bringing the economy into a severe crisis. The masses wish to avenge those who had been regarding them as an inferior race. In "The Twin", a popular movie with Pierre Richard, a multi-millionaire contemptuously ridiculed the main character's modest office, saying: "You and your brother belong to an inferior race".

This careless uppity of the rich, especially those involved in the "postindustrial" economy, is fraught with retribution. We are going to witness an analogue of the Moscow "open trials" of 1930s Ц this time, over American top businessmen. The first precedent was made by the Enron case of 2002-2003. At present, the House Committee on Oversight and Government Reform is interrogating Richard Fuld II, head of the board of Lehman Brothers Holdings. The investigators have proven that he was aware of the looming bankruptcy but paid $23 million of bonuses to top managers, along with his own personal salary of $400 million for the period since 2000.

Henry Waxman, chair of the Committee, is famous for his exposure of large-scale embezzlement, committed by government officials and private contractors during the "reconstruction of Iraq". Are the prosecutors ready to use the term "enemy of the people"?

Thus, we have to be ready to an era of new authoritarianism, planned economy and hard labor for the sake of reconstruction Ц though with most feeble hopes for stabilization in a visible perspective.


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