Yves here. I wish Sanders would use even more pointed messaging, like “socialism for the rich”. But for those who complain about Sanders not going after important targets, this slap back at Dimon, who criticized Sanders and socialism at Davos, shows that the Vermont Senator is landing punches, but choosing his fights carefully.
And banks are much bigger welfare queens than the public realizes. They get all sorts of subsidies, from underpriced deposit insurance to Federal guaranteed for most home mortgages to the Fed operating and backstopping the essential Fedwire system. These subsidies are so great that banks should not be considered to be private sector entities, yet we let them privatize their profits and socialize their train wrecks. As we wrote in 2010:
More support comes from Andrew Haldane of the Bank of England, who in a March 2010 paper compared the banking industry to the auto industry, in that they both produced pollutants: for cars, exhaust fumes; for bank, systemic risk. While economists were claiming that the losses to the US government on various rescues would be $100 billion (ahem, must have left out Freddie and Fannie in that tally), it ignores the broader costs (unemployment, business failures, reduced government services, particularly at the state and municipal level). His calculation of the world wide costs:
….these losses are multiples of the static costs, lying anywhere between one and five times annual GDP. Put in money terms, that is an output loss equivalent to between $60 trillion and $200 trillion for the world economy and between £1.8 trillion and £7.4 trillion for the UK. As Nobel-prize winning physicist Richard Feynman observed, to call these numbers “astronomical” would be to do astronomy a disservice: there are only hundreds of billions of stars in the galaxy. “Economical” might be a better description.
It is clear that banks would not have deep enough pockets to foot this bill. Assuming that a crisis occurs every 20 years, the systemic levy needed to recoup these crisis costs would be in excess of $1.5 trillion per year. The total market capitalisation of the largest global banks is currently only around $1.2 trillion. Fully internalising the output costs of financial crises would risk putting banks on the same trajectory as the dinosaurs, with the levy playing the role of the meteorite.
Yves here. So a banking industry that creates global crises is negative value added from a societal standpoint. It is purely extractive. Even though we have described its activities as looting (as in paying themselves so much that they bankrupt the business), the wider consequences are vastly worse than in textbook looting.
Back to the current post. As to JP Morgan’s socialism versus the old USSR’s planned economy, one recent study which I cannot readily find due to the sorry state of Google offered an important correction to conventional wisdom.
Recall that Soviet Russia initially did perform extremely well, freaking out the capitalist world by industrializing in a generation. There was ample hand-wringing as to whether a less disciplined free enterprise system could compete with a command and control economy. Economists got a seat at the policy table out of the concern that capitalist economies needed expert guidance to assure that they could produce both guns and butter.
The study concluded that central planning had worked well in Soviet Russia initially, until the lower-level apparatchiks started gaming the system by feeding bad information so as to make their performance look better (for instance, setting way too forgiving production targets, or demanding more resources than they needed). The paper contended that the increasingly poor information about what was actually happening on the ground considerably undermined the central planning process. That is not to say there weren’t also likely problems with motivation and overly rigid bureaucracies. But the evolution of modern corporations, of devaluing and ignoring worker input and treating them like machines that are scored against narrow metrics, looks as demotivating as the stereotypical Soviet factory.
Finally, this post conflates socialism, which includes New Deal-ish European style social democracy, with capitalist systems alongside strong social safety nets, which the public ownership and provision of goods and services. It should be noted that public ownership has regularly provided services like utilities very effectively.
By Paul Adler, Professor of Management and Organization, Sociology and Environmental Studies, University of Southern California. Originally published at The Conversation
Sen. Bernie Sanders called JPMorgan Chase CEO Jamie Dimon the “biggest corporate socialist in America today” in a recent ad.
He may have a point – beyond what he intended.
With his Dimon ad, Sanders is referring specifically to the bailouts JPMorgan and other banks took from the government during the 2008 financial crisis. But accepting government bailouts and corporate welfare is not the only way I believe American companies behave like closet socialists despite their professed love of free markets.
In reality, most big U.S. companies operate internally in ways Karl Marx would applaud as remarkably close to socialist-style central planning. Not only that, corporate America has arguably become a laboratory of innovation in socialist governance, as I show in my own research.
In public, CEOs like Dimon attack socialist planning while defending free markets.
But inside JPMorgan and most other big corporations, market competition is subordinated to planning. These big companies often contain dozens of business units and sometimes thousands. Instead of letting these units compete among themselves, CEOs typically direct a strategic planning processto ensure they cooperate to achieve the best outcomes for the corporation as a whole.
This is just how a socialist economy is intended to operate. The government would conduct economy-wide planning and set goals for each industry and enterprise, aiming to achieve the best outcome for society as a whole.
And just as companies rely internally on planned cooperation to meet goals and overcome challenges, the U.S. economy could use this harmony to overcome the existential crisis of our age – climate change. It’s a challenge so massive and urgent that it will require every part of the economy to work together with government in order to address it.
Overcoming Socialism’s Past Problems
But, of course, socialism doesn’t have a good track record.
One of the reasons socialist planning failed in the old Soviet Union, for example, was that it was so top-down that it lacked the kind of popular legitimacy that democracy grants a government. As a result, bureaucrats overseeing the planning process could not get reliable information about the real opportunities and challenges experienced by enterprises or citizens.
Moreover, enterprises had little incentive to strive to meet their assigned objectives, especially when they had so little involvement in formulating them.
A second reason the USSR didn’t survive was that its authoritarian system failed to motivate either workers or entrepreneurs. As a result, even though the government funded basic science generously, Soviet industry was a laggard in innovation.
Ironically, corporations – those singular products of capitalism – are showing how these and other problems of socialist planning can be surmounted.
Take the problem of democratic legitimacy. Some companies, such as General Electric, Kaiser Permanente and General Motors, have developed innovative ways to avoid the dysfunctions of autocratic planning by using techniques that enable lower-level personnel to participate actively in the strategy process.
Although profit pressures often force top managers to short-circuit the promised participation, when successfully integrated it not only provides top management with more reliable bottom-up input for strategic planning but also makes all employees more reliable partners in carrying it out.
So here we have centralization – not in the more familiar, autocratic model, but rather in a form I call “participative centralization.” In a socialist system, this approach could be adopted, adapted and scaled up to support economy-wide planning, ensuring that it was both democratic and effective.
As for motivating innovation, America’s big businesses face a challenge similar to that of socialism. They need employees to be collectivist, so they willingly comply with policies and procedures. But they need them to be simultaneously individualistic, to fuel divergent thinking and creativity.
One common solution in much of corporate America, as in the old Soviet Union, is to specialize those roles, with most people relegated to routine tasks while the privileged few work on innovation tasks. That approach, however, overlooks the creative capacities of the vast majority and leads to widespread employee disengagement and sub-par business performance.
Smarter businesses have found ways to overcome this dilemma by creating cultures and reward systems that support a synthesis of individualism and collectivism that I call “interdependent individualism.” In my research, I have found this kind of motivation in settings as diverse as Kaiser Permanent physicians, assembly-line workers at Toyota’s NUMMI plant and software developers at Computer Sciences Corp. These companies do this, in part, by rewarding both individual contributions to the organization’s goals as well as collaboration in achieving them.
While socialists have often recoiled against the idea individual performance-based rewards, these more sophisticated policies could be scaled up to the entire economy to help meet socialism’s innovation and motivation challenge.
Big Problems Require Big Government
The idea of such a socialist transformation in the U.S. may seem remote today.
But this can change, particularly as more Americans, especially young ones, embrace socialism. One reason they are doing so is because the current capitalist system has so manifestly failed to deal with climate change.
Looking inside these companies suggests a better way forward – and hope for society’s ability to avert catastrophe.
Thank you, Yves.
Just to add, as a former bank and buy side lobbyist, the industry is not always opposed to regulation. It’s a barrier to entry.
This post is on the money. Banksters and their clients love corporate welfare and socialism for the rich, especially when so much of, for example, UK QE “leaked” into asset bubbles in emerging markets, commodities and real estate.
You are right to say that Sanders should use more pointed language. Like Nina Turner, he should call out oligarchs. That term is used for Russians and Ukrainians, but never for the likes of Zuckerberg, Musk, Dimon, Blankfein, Schmidt, Branson, Dyson, Arnault et al. The term regime should also be used. If it’s good enough to delegitimise certain governments, it’s good enough to describe the Trump and Johnson administrations. After all, William Hague in talks with the US government called the British government the Brown regime.
Feynman and Haldane are mentioned above. It emerged this week that Dominic Cummings, Johnson’s main adviser, is an admirer of both, regarding them as free thinkers and technicians of substance, and championed Haldane’s candidacy to be Bank of England governor. Johnson sided with Chancellor Sajid Javid.
Sanders should use more pointed language… or may be not for the moment. May be after the Super Tuesday. He is being careful and that is good IMO. He doesn’t want to give excuses for easy attacks. I would say, instead of “socialism for the rich”, “socialism for the 1%” or the 0,1% even better. Sounds more neutral. A comment yesterday linked an article comparing Sanders with Gandhi and others and I think it was well pointed. The quiet and careful revolution!
Attack the economics and not the strawmen.
what do you think of american democracy? i think it would be a good idea.
Sanders understands (as does Trump), that the 2020 battle is *not* for the 35-40% whose minds are basically made up at each end. Trying to win those over in any numbers (especially by shrieking invective at them) is a pathetic waste of time and effort.
The winning message must move the 20-30% of voters who either:
(a) voted Obama (hope, for something more than soothing patter) and then Trump (a giant stubby middle finger to the establishment).
(b) voted Obama in 2008 but have stayed at home since (what’s the point? they’re all lying scum)
Sanders simply doesn’t bring socialism to America, because he doesn’t have a New Deal (i.e. SocDem) party. That kind of movement will take time (and the upcoming global climatolo-economic crisis) to build up, under savage attack from the propertied unterests and continuously subverted by credentialed PMC weasels and Idpol misleadership grifters.
What Sanders the man *does* bring, today, is:
(1) unimpeachable integrity, steadfastness and sorely missed absence of smug BS and double talk;
(2) hardheaded enforcement of the existing laws of the land;
(3) delivery of universal Concrete Material Benefits© to the broad citizenry (not more ‘GDP’ gravy for the oligarchs) in finite time, freeing them to rejuvenate themselves, and over time, the Republic.
This last is vitally important, but must also be approached prudently lest the entire movement lose focus, overextend and fall prey to the next Trump….
IMHO, it must focus ruthlessly on delivering:
(a) single payer health care, to starve (if not incinerate) the bloated ticks gorging on the US health/elder ‘care’…. cesspool, I can’t bring myself to call it a ‘system’. This above all: without it, Americans simply can’t compete in any world, walls and tariffs or not.
(b) *real* infrastructure, for the 80%. That’s water and sewerage, cross-class public housing, and busways and light rail to coax Americans out of their cars and suburbs. It’s not 5G, vanity EVs and high speed Acelas. And sorry Keynesians, shovel ready is a side benefit, not the primary purpose. There’s a lot to do.
(c) an overhaul of American higher education (still rooted in 17th century divinity schools). Teaching (and medicine) must again become honored occupations in the country; administrators must give way to front line practitioners.
…. Only then can Bernie move on to the more deeply embedded and multinational targets:
(a) big finance,
(b) extractive industries
(c) the MIC
These behemoths can really only be attacked during a time of crisis. Or they will simply crush their opponents like insects, or buy them off.
In the case of the MIC, Berniecrats will likely need to be content with strong reassertion of Federal oversight (more stick, less carrot), and disengagement from doing our ‘allies’ dirty work (Trump is already on that road, with one huge Ixception….)
Total dismantlement sounds very nice, but consider: whatever’s left of US industrial power is concentrated in the MIC. America doesn’t need to ‘buy prosperity down at the armoury’, but like FDR, Bernie and (Tulsi) will also need to have the keels laid down against whatever whirlwind we have reaped. Baring our breast and saying ‘we deserve destruction for our sins’ is a fatuous open invitation to fascism. FDR knew better.
Anybody citing Kaiser Permanente as a good example of anything has never known a person subjected to their distinctive form of “care”.
Excuse me! A member of Kaiser for more than thirty years…….approaching 90 years; have had prostate cancer treatment; bladder surgeries……..Have not had any problems over those years that I had to battle.
A member of my family owns medium size tecchie business in Silicon V.; stumped for years by the “ordinary” health care mess….switched to Kaiser ten years ago and still can’t figure out how they did the battles with the “other” health care plans all those previous years. Owners happier; employees same.
There are probably problem stories with all the health care systems. I believe whole-heartedly in single payer. Period. We are in the dark ages.
Sanders was pretty direct last night at the CNN Town Hall. Flat out calls Trump a socialist. (youtube link to the question.)
Also, stick around for his answer to Cooper’s followup question. Gloves are off.
Paul Adler’s post here reminds me of John Kenneth Galbraith’s New Industrial State, except Professor Adler was referring to the financial (i.e. parasitical) sector of the economy. Am I off the mark in thinking this?
You’re right on. Galbraith showed that planning comes naturally from very large projects. Soviets went to planning because they couldn’t bet the entire national economy on some gut feeling — they needed to know what would happen. Ditto the gigantic industries in what JKG called the Planning Sector in the west. Projects spending millions or billions of dollars over many years couldn’t be left to chance. Eliminating chance meant imposing control, which the gigantic industries could try to do, helped by their access to gigantic capital, and which the Soviets had done with State power.
IMHO the modern FIRE sector arose from the old Planning Sector. They eliminated the uncertainties that complicated their planning; they cut their ties with physical processes that brought those uncertainties; they dumped physical industries onto throwaway economies overseas (that could be abandoned if they failed); they finally became pure businesses that dealt only with nice, clean contracts. No muss, no fuss, no bother.
So planning is a tool of any organization, yet is required more the larger it becomes? While planning may make sense for a company with a single product such as automobiles, does it make sense for a conglomerate? I mean I think the purpose of a conglomerate is to contain many diverse product sectors to reduce risk of the conglomerate as a whole to any one sector. In that way each sector does its own planning, but the conglomerate as a whole does not, apart from choosing which companies to buy and sell, which can be considered a different type of planning? In that way are the goals of society planning are different from the goals of conglomerate planning or that of smaller single product sector companies? Yet in spite of these differences the techniques of planning are the same? Is that the main point of Alder’s article? Can someone explain please.
Dimon – billionaire bank manager.
If you surf around a bit you can find links to Bernie’s views and support of worker co-ops. There is nothing on his website. In light the burgeoning Socialist smear tsunami, it is probably not something he wants to emphasize right now. Imagine someone getting up at a CNN Town Hall and asking him about his attitude towards worker cooperatives. (corporate heads explode on golf-courses all over America)
Modern theses about leadership, expertise and management underline agile learning and self leadership to everyone himself and within team and then within larger entities. While I’m somewhat pessimistic about these corporate trends they still look like they would work much better with worker co-ops than in traditional top down owned corporations. Basically they are asking higher dedication from workers, but this only works really well if the profits are shared with workers in somewhat equitable manner in my opinion.
Also it seems common nowadays that many coding/programming companies, especially the highly productive ones seem to act more akin to co-ops than monolithically led traditional companies. The programmers are often engaged more to the company by giving or selling them shares, and if this happens in large scale the company ownership structure can skew more towards worker owned ‘co-op’-like entity than more hierarchical traditional company, where owners and workers are usually clearly separated.
Be nice if one could have posted the Forbes 400 but, listed next to each entry, is the amount of money that they receive from the Federal government both directly and indirectly.
You might want to have a look at Open Secrets
They conveniently list which money went where, and how the respective legislator voted.
Yves here. So a banking industry that creates global crises is negative value added from a societal standpoint. It is purely extractive. [bold in the original]
Which leads to this obvious question: Why should banks be privileged, explicitly or implicitly, in any way then?
E.g. why should we have only a SINGLE payment system (besides grubby physical fiat, paper bills and coins) that recklessly combines what should be inherently risk-free deposits with the inherently at-risk deposits the banks themselves create? I.e. why should a government privileged usury cartel hold the entire economy hostage?
If you mean “why” in the moral sense, which I believe you do, there is no answer.
If you mean why in the technical sense, examine this sentence:
>why should a government privileged usury cartel
It’s not “government privileged”, it owns the government. Anything the government is allowed to do outside of making Jamie Dimon et al richer are considered the actual privileges by this group, and can, will and have been retracted at will.
If the banks cognitively “own” the government, it’s because almost everyone believes TINA to government privileges for them.
This is disgracefully true of the big names of MMT, who should be working on HOW to abolish those privileges, not ignore or, in the case of Warren Mosler at least, INCREASE* them.
*e.g. unlimited, unsecured loans from the Central Bank to banks at ZERO percent.
Government Issued Physical & E-currency
Actual Anti-trust Enforcement
Postal Banking David Mills
Why not citizen debit/checking accounts at the Central Bank itself? Alongside those of depository institutions? To avoid any actual or suspicion of unequal protection under the law?
In other words, citizens should be allowed to use fiat ITSELF in account form and not mere LIABILITIES FOR FIAT as would be the case with a Postal Bank.
Beware of red-herrings wrt to genuine reform …
That neither extreme, capitalism or socialism, works, and that what is best for human society is some middle ground between the two is a very important message. So I’m very glad for this post. I realize that a black and white way of perceiving the world is an easy one. Yet as Alder points out, humans are both individuals and social beings. If people in this world could get back to thinking more like Ancient Greece in its appreciation for the golden mean, we would have a much better chance of surviving. Dispensing with all these useless socialism vs capitalism discussions would be a great time saver. I realize most people believe in some middle ground, yet making it explicit would simplify things quite a bit. As for the rest of the article, I need to think about it more. The corporate socialism idea does tie in with the link yesterday about limited liability.
>That neither extreme, capitalism or socialism, works,
Exactly! Because: There. Is. No. Economic. Equilibrium. Never was, never will be, anywhere and everywhere. Heck for billions of years, before humans existed let alone learned to talk, the world changed. Things developed, other things went extinct (although not in the heart-wrenching way of the Anthropocene, I personally am happy never to have met a T. Rex in truth), the way the world works even without us is continual change.
So adjust as necessary. Our healthcare system sucks, bring full bore socialism on it. Our corporate overlords suck, bring full bore free markets (kill patents to start) on them.
You might want to re-think the “kill patents” idea. Our Founders liked them. I just had a patent “killed” by an examiner who “killed” 42 of 43 patents he examined. It was for a device which could be saving Corona/Flu victims Right Now. I am going to try to Donate the idea to Society, but preventing people from profiting from valid Novel ideas is not the solution. I realize Corporations abuse the Patent System, like every other thing they touch. But I am a low level individual who is trying to “innovate” and reduce illness. My main motivation was not monetary but it is always a factor.
I believe you have the wrong target on this issue.
My first rejection on a related patent was just received 2.5 years after initial filing. It took this long because the Govt. takes money from USPTO (which runs a surplus) and sends it to the General Fund. USA innovation friendly? Not the way I see it.
“But for those who complain about Sanders not going after important targets…”
Consider the wisdom of Susan Webber:
“Wisdom of the CEO is comprimised work. These CEOs “know” that too much candor,
either individually or institutionally, is not a pro-survival strategy.”
I think the comparison of banks to welfare queens is quite unfair.
To welfare queens, that is.
Assuming they exist outside of the sweaty PR fantasies of those of a certain political stripe, presumably even a welfare queen is not living 100% off of the munificence of the state, whereas the implied value of the “Too Big To Fail” guaranty subsidy was determined to be very nearly in the same amount as the annual profits of the recipient banks. In other words, they’re complete wards of the state. Doesn’t get much more socialistic than that.
In other words: “Socialism for me, markets for thee.”
Thank you, Yves for this post. Alder has very logical and accessible ideas. “Interdependent Individualism” is a good way to begin. When he says “socialists recoil against individual performance-based rewards” I can’t help but think the rewards should be gifted from the workers to the bosses. Because that would be very change-promoting. Top down has a tendency to stagnate motivation – even offensively – like tossing them a few crumbs to keep them quiet. imo. This also really does sound Japanese. I’m not sure I can relate to the way they cooperate; from them there is not so much as a polite argument; certainly no sarcastic barbs. Americans are the exact opposite – we cooperate competitively in a sense. But Climate Change will dictate our direction regardless of decorum. My own sense of our dilemma is that “free market” corporations make their profits by extracting from labor and the exploitation of the environment, and by externalizing costs to society. Big disconnect. Huge, in fact. This is why “capitalism” has failed to address climate change. Anybody else notice that China has forbidden short selling as we speak? Just like the Fed did in 2009 with QE, etc. That’s probably because if the economy crashes (regardless of how illogical it has become) it will take way too long to put back together. And there’s work to be done. I remember Randy Wray dryly responding to Jacobin’s criticism (of MMT) that the ideological socialists would rather see a bloody Marxist uprising than a peaceful evolution. I do think Wray is right on ideological blinders on both sides. One quibble I have with this very wise post is that it assumes (I think) that we cannot change our ways fast enough to mobilize adequately to address climate change. I think we’ve been doing it pretty aggressively since 2009. Literally a world war to control oil and maintain financial supremacy; serious consideration of our options by the political class (turning to MMT, etc.); slamming the breaks on trade and manufacturing; subsidizing essential industries. I’m sure there are other things going on under the radar. So I wouldn’t discount our ability to mobilize – just our inability to admit it. Clearly we want to do things selectively.
>the Vermont Senator is landing punches, but choosing his fights carefully.
Yes, as Objective Function laid out nicely (funny word for this mess, but whatever) above – this isn’t gonna be easy. If you hope to beat Mike Tyson in his prime, you don’t start by trading heavy blows. Defeat him with small but continuous cuts from multiple directions.
Speaking of Davos and Dimon, shouldn’t that be “Biggest Corporate Criminals”?
“… senior leaders of three of the largest and most elite U.S. banks were serial criminals whose frauds are (we pray) without equal.” — William K. Black
Wallstreet on parade website does great job laying out JPM’s crime spree. They (JPM) just came off parole(?) in January on some Felony charges. Someone (Eliz. Warren?) might start a movement to prohibit public pensions / State and local Govts. from conducting business with any banks convicted of felonies or entering plea agreements more than, let’s say, ten per year.
A convicted felon can not get a job at a bank run by a 22 times loser- Jamie Dimon, a fellow felon who should have some empathy.
Wallstreet on parade is one of few sites who discuss Citi’s crimes, and the fact that the Federal Reserve tried to cover up (and succeeded until about 2012) the secret 2.5 TRILLIION in revolving loans provided to a bankrupt Citibank around 2009. This in addition to the hundreds of billions we did know about.
I do tend to harp on this because the felon Robert Rubin cost me about 500K in expired Put options on shittybank because of his blatant, felonious (per FCIC) lies right before the implosion. His referral for prosecution by the Financial Crises Inquiry Commission mysteriously withered away…
The USSR’s industrialisation was astonishing in speed and capacity. UK did some thing similar under William Pitt’s control of BoE at the start of the current form of national economy. Richard Werner has shown us (in his book “Princes of the Yen”) that the BoJ did the same for Japan after WWII. Its quite likely, once the details come out, that we’ll see China has done it too, at least somewhat. Its not a secret. Werner traced it back to Schacht’s measures on behalf of the National Socialists to re-animate the German economy against the West’s intentions. That’s a subject that is still mired in confusion in spite of Tooze’s endless monologue “The Wages of Destruction.” For some reason, the means of growing an economy without the razmatazz of stock markets and share issues is secret.
Yves, can you give me any clue on how to find this study? I am very interested.