Spencer for President – Position Paper Number 7

7. Create socialism (economic democracy) for “commodities” (insurance, banking, steel, oil, power)

A “commodity” in this sense means a service or product that is in a non-competitive business environment. That is, there are no “market forces” in a short-run context. (There is always competition at some level and over a longer time-frame. Steel supplants cast iron and wood; titanium, aluminum, and graphite-composites supplant steel. Japanese heavy industries out-compete U.S. producers; now here come the Chinese, among others.)

In our country the only competition between banks, between insurance companies, between oil companies, and between electrical utilities is for bragging rights concerning profits and management salaries. They all provide products that are essentially undifferentiated. And there may be four different names on the four gas stations at a crossroads, but the producers (Big Oil) are interlocked by marriage, by class interest, by mutual investments, by non-oil-company Boards of Directors’ positions, by lobbying organizations, by industry organization (primarily, the American Petroleum Institute), and by mutual production arrangements.

Effectively, these monopolies (oligopolies, if you prefer) create socialism for the super-rich. They are thoroughly interwoven with the national government via politicians who repel almost every attempt to create or enforce some type of social accountability or responsibility on them. Federal bureaucracies also serve their interests in various ways. The Federal Reserve administers monetary policy and a base interest rate that assures the big banks a cost-plus-profit relationship with the money supply. The Department of Energy employs geologists who supply, organize, and analyze much of the data that Big Oil uses to determine their production strategies. Insurance companies are “regulated” by an agency that actually compiles and organizes the statistics, or actuarial data, that determine insurance rates.

The point here is that we have a socialistic control system for the benefit of large corporations in this country already: government regulatory agencies, few separated centers for strategy and marketing decisions, and non-market-controlled price fixing. The situation even includes one of the main drawbacks to socialism – difficulty in creating alternative systems or competitive organizations. It has been many a year since most of us recognized that solar-based electrical and heat generation was a better approach to supplying many energy needs than fossil-fuel-based generation. Ask yourself – what role has the U.S. government played in development of solar-based energy production? And why?

So – we have a critique. Interestingly, we also have the skeleton of a system for converting chosen industries to a truly socialistic arrangement: bureaucracies that are dedicated to the welfare of the industries involved. In the context of the specific industries mentioned above, this would involve nationalization of the productive facilities of two sectors: petroleum (production/refining/transportation) and basic steel production. (I include steel, because it is not currently viable in this country, but should be. Steel is still a backbone component of all industry and infrastructure. To rely on distant producers is economically foolish, plus ecologically irresponsible due to: 1) the energy to transport steel to the U.S., and 2) the relatively lax environmental controls of many foreign steel producers.])

Insurance and banking would be national agencies, too, but these could be set up from scratch without necessarily displacing or expropriating private companies. These types of socialized businesses should compete with private companies. If the private companies actually can provide a better service, they should get the associated reward.

An essential part of my approach would be the “mixed economy” model. Entrepreneurial capitalism is vitally important to economic development and technological progress. Any field that is new and competitive should be subject to true market forces – an important feature of economic democracy. The problem with major segments of our current economy is as noted above: they are not competitive. They are mature, stagnant, domineering (and often corrupt) businesses that merely take a percentage of each transaction and give it to the super-rich for no true and necessary reason. Their “patent” expired, and their investment was paid off, long ago.

As to the standard counterarguments, one of the classic reproaches to socialism is the complaint that labor becomes inefficient, if not essentially anti-social. “The trains won’t run on time”, however, does not seem very meaningful in the current context of the private airplane companies’ records for on-time performance. Simply put, it does not have to be that way. For a modern and a better example, the Japanese train systems, including the Shinkansen, are government-subsidized monopolies. As essentially socialistic entities, they belie our common assumptions about such enterprises that: 1) employees don’t care about service or schedules or customer relations, and 2) management is complacent. I have only witnessed professional – I might almost say “gracious” – employee behavior. Moreover, the only serious accident in many years – in the whole system – occurred last year on a branch line that had been sold off in one of then-Prime Minister Koizumi’s privatization experiments.

Another aspect that needs to be considered is that the Japanese system is regionalized to a major extent. Control of infrastructure and schedules and train interaction is exercised by decentralized centers, just like Air Traffic Control in the U.S. There is no doubt in my mind that almost all such ventures should be distributed in such a way as to maximize local control. Likewise, power generation should be highly regionalized to reduce transmission losses and transportation costs. Energy and fuel should be hindered from travelling long-distance, except in case of a mutually-agreed emergency. With the advent of solar-based energy systems, “fuel” is nearly ubiquitous.

Given the point that a certain level of limited socialism has social relevance, is the nationalized, bureaucratized version the only model? In fact there are other forms of business organization that are socialistic in a broad sense, such as co-operatives. The form in this case – and others to be discussed in Position Paper # 8 – should fit the situation and the clientele. Like insurance they should compete in a non-exclusive market against corporations and sole proprietorships; like energy production and distribution they will naturally be local/regional.

When an enterprise has a national scope, though, we should be implementing a national(ized) approach – i.e., socialism as it is usually defined. I would add, however, a caveat that has not been treated often in socialist theory: the customer has to be part of the organizational and operational process. In the past the welfare of “the people” has been a very generalized and invidious consideration. Bureaucrats and politicians have been their stand-ins in most practice. The consumer is the missing component in most socialist schemes.

When the basic policy is promulgated, I recommend that we start implementation with an easy target – insurance. The insurance “industry” is a cash cow for the super-rich. They own the companies; we put money into their coffers; they make loans to themselves (their corporations) for low rates of interest; they pay out a percentage of the money that we entrust to them against our claims; they pocket the remainder in the form of dividends. And the cycle goes on and on. Now and then some disaster defeats the actuarial basis of their rate structure. Then the federal government comes in with our tax money to mitigate their loss. It should not be a stretch to convince a large majority of the country to eliminate the “middle man”. We have the popular and relatively successful Social Security program to use as a template – with modifications due to the differences between the standard forms (health, life, home, and accident) of insurance versus the system for retirement benefits.

My guess is that socialization of petroleum-related industries would be popular, too. But that’s a subject for another, focussed discussion. Meantime, given the current economic situation for the U.S. middle class; given our understanding of corporate misleadership; given our declining industrial base – we should be able to make the case with a majority of our fellow citizens that we are on the downward side of an economic cycle that only started upward with our emergence from World War II as the one country with an intact and dynamic industrial base. The current situation is not some minor cyclical correction. We are sliding down the drain, and the only solutions will involve public planning and participation in domestic economic enterprise.

Paul Spencer

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