Scalpers INC.

"Flash Boys – A Wall Street Revolt” by Michael Lewis, 2014

Lewis is a former 1980s Salomon Brothers fixed income trader who went rogue journalist, and pulled the cover off of some of Wall Street’s dirtiest secrets.  Here he does the same thing regarding the present practice of ‘flash’ or ‘high speed trading.‘ This is one of the main causes behind the increased volatility of the stock markets.  Computers are running the trading systems now, increasing prices and fees, trade volume, front-running, manipulation and complexity, while decreasing transparency and accurate regulatory oversight.  The majority of market trades are now done in ‘dark pools’ of the 9 main Wall Street banks or those of high-frequency trading firms (HFT), which skim off billions of dollars a year from investors.  The HFT’s act as riskless middle-men – almost never having a losing day.  Sort of like the attendant in the washroom who requires you to let him hand you the toilet paper, and requires a dollar for the service.

The story is vintage Lewis, though perhaps somewhat less funny than the portraits of Wall Street ‘wolves’ that he has painted in the past.

How have the HFT firms changed the industry?  The HFT firms already know the slow, ordinary buy bid, due to the speed of their computer lines.  They are able to ‘front-run’ the purchase because of this.  They jump ahead and get a higher price on some other exchange, if only fractions of a cent on large purchases.  But that adds up to billions over time.  Essentially they prove that ‘market knowledge is not equal or perfect,’ contrary to what the ideologists of capital claim. Lewis explains how it was done – something even most of the top people on Wall Street didn’t understand.  

This may seem like an arcane story, but if you have a 401K, an IRA, a mutual fund, a pension from a union, a company or the government, you are being skimmed too.  And not just on your ‘fees.’  This pattern went international, as these kind of exchanges are set up all over the world. 

More proof that, as Lewis puts it, “By the summer of 2013, the world’s financial markets were designed to maximize the number of collisions between ordinary investors and high-frequency traders – at the expense of ordinary investors, and for the benefit of high-frequency traders, exchanges, Wall Street banks and online brokerages.” In 2013 “38% of the entire stock market traded inside the banks’ own dark pools.”  Those pools are opaque ‘black boxes’ in which order and bid activity is invisible or never disclosed.  And they are still legal, thanks to our supine SEC.  Oddly enough, the banks found that ‘the best price’ on the 70% of the market they controlled existed a huge amount of the time in their own dark pools.  What are the odds, when there were 13 public exchanges and 40 secretive ‘dark pool’ exchanges just in 2007 in the US alone?

The ‘revolt’ in the title might be taking the term too far.  This a story of Brad Katsuyama, an Asian from Canada who worked for Royal Bank of Canada (RBC).  He found something severely odd when he tried to trade securities in 2007 in the U.S.  In 2007 “Reg NMS’ was a rule handed down by the SEC that mandated a ‘best price’ through a ‘best bid and offer’ - but it failed to regulate the speed at which this would happen.  What actually happened was that market technology took over and HFT firms were able to program algorithms that would essentially manipulate the market in fractions of a second.  As a trader, Katsuyama could not actually get a real price on his computer – they just disappeared.

Katsuyama looked into Wall Street history to get some perspective.  As Lewis describes what he found: “The entire history of Wall Street was the story of scandals… every systemic market injustice arose from some loophole in regulation.”  And there will always be loopholes.  So Lewis says there is zero chance that the problem will be solved by financial regulators.  This is where the ‘good guys’ from RBC came in - to solve a problem the bought-and-paid-for regulators won't.

What people saw when they looked at the U.S. stock markets – the numbers on the screens of the professional traders; the ticker tape running across the bottom of the CNBC screen - was an illusion.  Katsuyama said after the 2007 crash: “That is when I realized the markets were rigged.”

Katsuyama moved from Toronto to New York to work for RBC.  It was a tough transition.  “I met more offensive people in one year than I had in my entire life.”  In 2006 Royal Bank had a ‘no asshole’ hiring rule.  That is, until RBC bought Carlin Financial to gain some perspective on high-speed trading.  According to one RBC’er:  “There was a lot of gold chain attire.”  Lewis describes the situation:  “It was as if a tribe of 1980s Wall Street alpha males had stumbled upon a time machine and, as a prank, identified the most mild-mannered, well-behaved province of Canada and teleported themselves into it.”

Ultimately RBC got rid of Carlin and Katsuyama hired a group of technologically-saavy Wall Street misfits that looked into this problem and discovered that it was all about speed.  To foil the HFC firms they built a trading platform from the ground-up called “Thor,” which eventually gave a 350 microsecond delay into every transmission so that HFC firms could not game the offers.  In the process they brought the issue to the attention of the SEC – supposedly a ‘watchdog’ for investors.  In their meeting with the SEC, the SEC stood up for the HFC firms.  Later RBC did a study of SEC personnel and discovered that 200 SEC staffers had left jobs at the agency since 2007 to join HFT companies or their lobbying arms. In 2010, Judith King, head of the SEC’s Division of Trading and Markets quit to join GETCO, one of the largest HFC firms.  The SEC resembled every other agency in Washington- a revolving door with the firms they were supposed to ‘watch over.’

Later the group led by Kasuyama and an Irish techie named Ronan Ryan left RBC and went independent, building an exchange called the IEX, an exchange in which HFC firms allegedly cannot manipulate prices, make up bogus offers, skim fees or ‘payments for order flow.’  Katsuyama had to raise money for the new exchange.  He spent “spent six months running around New York faking greed he didn’t really feel, to put the money people at ease.”  No one would listen to him if he didn’t tell them how rich it would make him.  

One of the interesting side-lights in this story is the number of Russian and Chinese coders hired by Wall Street.  Several of them feature in this story, like Serge Aleynikov, who had the FBI called on him by Goldman Sachs for taking mostly open source code from Goldman.  Or the Croatian Zoran Perkov, who set up exchanges all over the world after his experience at NASDAQ, until he became disillusioned.  Or Allen Zhang, who built the code for the first successful dark pool.  They never quite understood the concept of ‘intellectual property’ or the obsession with money that most American Wall Streeters took for granted.  And they were looked down upon by the traders.  As Lewis says, “There are vividly clear class distinctions between tech guys and finance guys.” 

Lewis, led by the geek techies, here goes into complexity theory, which says that the more complex a system, the more risk is built into it.  A long string of Wall Street tech failures in 2013, and the notorious ‘flash crash’ of 2010 (really still unsolved) all indicate that there is another problem.  As Lewis puts it, “sensational technical glitches weren’t anomalies but symptoms” of the larger problem of complexity and fragmentation in market technology and rules.  Kaysuyama predicts that at some point, a euphemistic tech ‘glitch’ could become more like a black death star.

Lewis exposes the problems in Wall Street and shows that the ‘good guys’ are trying to make finance capital run better.  Sort of like the mechanic on a tank that is about to run over you anyway.  Humanizing capitalism is necessary when the serfs suddenly get the feeling that they are road kill. 

RBC runs many trades through IEX, promotes charities and good causes as marketing tools, and didn’t get bailed out by the Canadian or U.S. governments in the 2008 crash.  Nice, right? Ironically, they have a large commitment to a "Blue Water' Project" worldwide, which tries to protect our water supplies.  However, according to Canadian environmentalists, RBC is also the biggest funder of the mining companies in the Alberta tar sands.  This has resulted in water pollution and increasing cancer rates produced by mining tailings and chemicals in the McKenzie River basin.  Not to mention the carbon effect.  Many working-class Canadians are in debt to RBC, which holds their mortgages.  The clients of the U.S. arm, the ‘high net worth individuals’ that RBC Wealth Management slathers over, inherited their money or are mostly small businessmen or corporate managers who gained their money from the labor of working people.  RBC in reality is merely a parasite upon these parasites, though a far more polite one. 

In sum, the problems suggested in this book are much bigger than the ‘fix’ presented.  But that is not why we read books like this - it is for the factual information that capital tries to hide. And Lewis is one of the best explainers of those hidden facts.

Reviewed below: “Liars Poker,” and “The Big Short,” (both by  Michael Lewis).  Use blog search box, upper left. 

And I bought it at May Day’s excellent used/cut out/donated book section.

Red Frog

April 26, 2015

New Lynching Figures Out

"Sycamore Row,” by John Grisham, 2013

A white man is found hanging from a sycamore tree on his 160 acres near Clanton, Mississippi.  He was in the last throes of painful terminal cancer.  He’s prepared a new hand-written will, specific instructions on his funeral and burial, sold most of his assets, hired an attorney, made telephone calls, left a legible note and tied a really efficient knot.  His new will leaves more than $24 million dollars to his black housekeeper and nurse, and nothing for his estranged white adult children. 
   

Southern Sycamore Tree

 And there’s the rub.  The legal sharks will attack. Was it really a suicide? And who does that?  Was he in his ‘right’ mind?  Did he have ‘testamentary capacity?”  And most of all, why would he do it?

Grisham has fashioned a sequel to his first book, “A Time to Kill,” (reviewed below) using the same crew of Mississippians.   A hungry young trial attorney, his unexpected female paralegal and two boozy fellow-counsels as back-up – all working the town square of Clanton from the liberal side.  Three years after the big trial in that book, Jake Brigance is still renting, mostly broke, still afraid of the Klan and waiting for the next big thing.  And Jake gets it, as he’s selected as the attorney for the decedent’s will, an appointment he gets in the mail from a man he never knew.  It is the biggest will contest in Ford County, and will make the housekeeper the wealthiest black person in the whole state if it flies.

Grisham used to live in Oxford, Mississippi, living in the long shadow of William Faulkner.  Some of his characters are still caught reading Faulkner.  Grisham, while no Faulkner, is a ‘genre’ writer who uses the same sense of place to put you in, not Yoknapatawpha County, but his Ford County.  And in a way, the topic is the same – the original sin of the ‘South’ – slavery, Jim Crow and enduring racism.  Maybe that is why there is so much religion in southern states – atonement is needed. 

Left radicals know that institutional racism is not limited to the South. Yet the residual ‘nationalism’ of self-proclaimed ‘southern’ literature makes its own bed in that room again and again.

Grisham’s take on the legal profession hasn’t changed – full of greedy careerists, honest men, egoists or street-fighters, drunks or frauds.  His liberal ideology says that pluck and truth will win out and that ‘equality before the law’ is real.  Marxists point out that the existence of classes actually prevents real ‘equality before the law’ in most cases.  The 'new' Jim Crow is not an accident.  This book is somewhat like the movies we watch where the ‘good guys’ win.  These stories are popular because it happens so rarely in real capitalist life, and it's why we read them.  The placebo effect.

Jakes uses his local connections to the utmost to beat the out-of-town lawyers.  Jake ear-wigs the judge, has a waitress spying for him in the local coffee-shop, considers the black sheriff of Ford County a good friend and ally.  More importantly, he has two drunken attorney friends who are smarter than the white-collar lawyers from Jackson and Memphis.  The book has some of the same melodramatic crunches that happened in “A Time to Kill,” but seems a bit more grounded and real.  This book is a fitting sequel from the 'best of the legal genre' writer.  I will not give away the mystery, but will only say that the morbid and progressive meaning of ‘Sycamore Row’ is fully revealed on the last page.

And I bought it at Schipol Airport, Amsterdam, Netherlands

Red Frog

April 24, 2015

Under the Tuscan Rain

"The Dark Heart of Italy,” by Tobias Jones, 2007 to 2013

Behind the food, the views, the clothes and ‘la dolce vita’ of the Italian Brand is another reality.  While the Berlosconi political era is ostensibly passed in Italy, nothing has really changed as Jones’ 2013 book afterward indicates. Jones dug into Italy’s corruption and class rule after a 4-year stint living and teaching there.  He discussed the real nature of Italy with Italians, not tourists, as he learned Italian and was able to communicate well.  While escapism might be a main reason many travel, it is not all, nor should be.  Here is the dark side behind the vino rosso and the Tuscan erotica.  Italy to me is like some bright cross between Mexico and the American South – a second-world country that wants you to think it’s not. 

Sunbather on a WWII Pillbox - CGG

Writing from “Red” Parma in the north, Jones first encounters Italy as a British travel writer interested in fresco tints and wine vintages.  The longer he stays there, the more he starts seeing something else under the covers.  His original middle-of the road impulse stays with him, in spite of the facts that he accumulates.  While constantly talking about Italy being divided almost exactly in two by diametrically opposed social views, and practically siding with the Italian Left, he can’t seem to actually do it.  He continues to make jabs at a Left that has almost never been in power, and hence has not really been able to change Italy.  And Italy desperately needs change.  The Communist Party, and then the 'Democratic Party of the Left’ or the more left 'Refondazione' were never able to win a national bourgeois election, for all the same reasons we are familiar with.  Sometimes Jones tries to convince himself that ordinary Italian psychology is why ‘everyone’ agrees with a culture of power and corruption. Berlusconi openly said bribery was normal and should be acceptable.  Do all Italians agree?  Of course not.  Many despair.  

Working-class Italians have a difficult time with the intolerable bureaucracy of government paperwork; with laws that are not followed by the elites; with bribes and high prices, with banks that will not make loans to ordinary people, with the archaic nature of the culture.  Rising above them since World War II is the constant rule of industrialists, the Catholic Vatican, neo-Fascists and the Mafia, all working together.  All were refracted in the ‘new’ figure of Berlusconi in the early 1990s.  Berlusconi is the billionaire owner of a swath of Italian corporations, including most private television in Italy, and a smiling, tanned bon vivant.  He was the novo-inheritor of the tradition of “Christian Democracy” rejected in 1991, yet giving it an ‘outsider’ twist like an Italian Tea-Party.  He was the perfect neo-conservative, enacting Thatcher/Reagan policies while actually enriching his corporations and his cronies.  Even Enrico Craxi, the indicted leader of the neo-liberal Socialist Party, endorsed him at one point - which gives you an idea of the degeneration of the 2^nd International in Italy.  Berlusconi’s new party dominated Italian politics for about 20 years, from 1992 to 2012 in alliance with the xenophobic “Northern League.”  

Jones explores Italy through several highly-political trials involving alleged bombings and killings during the radical 1960s to 1980s, starting with the fascist bombing in Milan at Piazza Fontana in 1969 that killed many civilians.  This period is called the ‘anni di piombo.’ ('years of lead.')  This period of suppressed civil war reflected the real civil war in 1943-1945 between Italian partisans and Mussolini's fascists.  These trials revealed the deep divide in Italian politics between the proletarian or ‘honest’ voters and the deeply corrupt and corporate ones – the latter being allied with the violent Italian state. These sections bring back all the issues of Italian politics that American radicals have probably forgotten.

Jones discusses the corruption of Italian soccer, which has rigged games, rich team owners who collaborate and players who are drugged up.  He has a hilarious examination of dreadful Italian television, which puts every Italian weakness on display – much as American television does for us.  Another is a chapter on corrupt building construction practices, which have decimated some environments and resulted in over-production of housing units all over the peninsula.  Jones makes a ‘pilgrimage’ to a monastery in southern Italy, and examines the touristic world of Catholic miracles and saints through “Father Pio,” a modern who supposedly bled from stigmata.  To be a Catholic saint you have to perform miracles, which shows how the Catholic faith is still deeply embedded in pre-Enlightenment mysticism.  Jones mentions that Italy is ‘the land that women’s liberation forgot.’  Powerful men can diddle their young female employees and are admired in Italy.  In the U.S. that is called workplace harassment.  It can get you fired, as textile magnate Dov Charney  from “American Apparel” found out.  Not so in Italy.   

Factoids from Jones:  Italy surpassed the U.S. in the late 1990s on car ownership, having the most cars per capita of any country in the world.  Can you say Alfa Romeo, Maserati, Lamborghini, Ferrari, Bugatti?  Toy cars are frequently sold in stores to adults.  There is a Fiat everywhere.  Italy has a quarter of all the registered television stations in the world, covering every topic imaginable, including multiple channels of women parading around in bathing suits.  Italy has a huge amount of empty apartments and homes due to legal and illegal overbuilding.  Italy has the highest voter attendance of any bourgeois democracy – around 95%.  In 1999, Italy topped the list of human rights violators in Europe.  At one point, it was rated by independent organizations as the most corrupt country in Europe.  Italy also has more laws than any other European country.

Of note, Jones points out that behind the ‘relaxed attitudes’ of Italians masks a deep subservience to power.  Many Italians rightly fear and distrust the Italian rich and their capitalist government, and hence some act more like serfs than citizens.  Long acculturation to the rule of the masters and businessmen has imprinted itself on many, especially those in small towns.   This is somewhat similar to the attitudes in the American south.  He also has a long section on the degeneration of Italian culture.  Italy still constantly celebrates its high point 500 years ago during the Renaissance.  A later footnote - an explosion of great Italian film culture in the 1960s and 1970s around directors like Antoniono, Bertolucci, De Sica, Fellini, Pasolini and Rossellini - is no more.  A new 2014 Italian film, “The Great Beauty,” attempted to mirror these classics, but merely showed that the Italian ‘art crowd’ intelligentsia has failed to become anything more than a beautiful irrelevancy.   Tourists are presented with the Renaissance as if modernity has never occurred.  Take pictures! Yet even many Italians are tired of worshipful viewing of Madonna’s, frescos of saints and ancient sculpture.  Not so American art teachers and students however.  

Here are some choice quotes from Jones:  

“Credibility in Italian is often based on pomposity.” 

“There is a provincialism in Italy that is unthinkable elsewhere.”

“Italy isn’t a religious country’ It’s a clerical one.” 

“As the British go to the pub (to socialize) Italians go to the post-office.”

Italy specializes in “I don’t care-ism.” 

“The country is based upon aesthetics much more than ethics.” 

“Only dress and dining codes are rigorously obeyed.”

“No one is entirely guilty, no one ever simply innocent.”

A thoroughly enjoyable book.  Should you find yourself in Italy, worth reading on a sunny piazza while downing a macchiato or a Campari soda.  However, please don’t notice the omnipresent offices of the ‘Carabiniera’ police in every Italian city.

And I bought it in the crowded tourist hill-town of Siena, Toscana, Italia.

Red Frog

April 18, 2015

Carnival in the Streets

Super-Size Wages!  $15 an Hour Campaign Targets McDonalds

As part of a nation-wide protest in the U.S. on April 15, a large and boisterous crowd marched from the plaza in front of Northrup Auditorium at the U of Minnesota to rally in front of the Dinkytown McDonalds.  Workers called for, not super-sizing their sugary drinks or toxic fries, but their wages.  Burly McDonald’s managers in blue stood at the entrance alleging McDonald’s was still ‘open.’ Evidently, like the crowd, they also 'were not lovin' it.'  

Sponsored by a broad range of organizations – $15 Now Campaign; Neighborhood’s Organizing for Change (NOC); Centro de Trabajores Unidos in Lucha (CTUL); $15 Now Airport campaign, Teamsters Local 320 at the U; SEIU, AFSCME Local 3800 at the U; the union organizing committee for faculty at the U; and some other union locals, it was a working-class crowd that also attracted ‘soon to be’ workers – students, many of whom have to work to pay the U’s high tuition. 

Speeches were made in front of Morrill Hall, the center of the U’s administration. (Some call it ‘Im-Morrill Hall’ at this point.)  A Latino woman who is on strike against her fast-food restaurant spoke from CTUL.  Cherene Horzuk, the head of Local 3800 AFSCME, gave a rousing speech about the U secretaries and administrative workers’ successful struggle to get $15 an hour.  They have been in conflict with the bourgeois 1% that has been running the Board of Regents since the Vietnam War days.  The Regents run a very expensive, top-heavy administration that even the NY Times noted, instead of paying their staff that actually do the work.  A representative of the committee attempting to unionize faculty and TA’s spoke, as well as a Latino student who worked at fast-food restaurants for 3 years in order to become a PHD student. 

The march was led by the CTUL truck decked out in flags.  Enthusiastic young people from NOC and SEIU led chants against McDonalds, the bosses in general, for $15 an hour and for worker unity, (“Oberos, unidos, jamas seran vencidos” made its appearance.).  At one special moment as the crowd of about 400 crossed University Avenue into Dinkytown, dance music broke out and NOC led the dance moves in the street.  This might remind anyone of a quote from Emma Goldman. 

The march wound through Dinkytown and by some unaware students who perhaps had beer, shopping or their career on their minds, not the minimum wage.  The truck stopped in front of McDonalds’ and the marshals (from SEIU?) kept everyone in the street on 4th, away from McDonalds.  One observer from the IWW called it a bit of street theater, no more.  Perhaps the next time, surprise visits could be made to a fast-food restaurants for sit-ins.  As the old chant goes, “Shut it down, shut it tight, the bosses can’t profit when the workers unite.”  (It was reported to me later that people went inside the McDonalds, or that it was locked for the period of the rally.  Can anyone verify this?)

The capitalists at McDonald’s have not followed the slightly more aware corporate managers at Wal-Mart and Target by raising wages even a bit across the board.  However Wal-Mart and Target’s wages are still nowhere near $15.  Studies have shown that even $15 is inadequate for food and housing in Minneapolis, with the real bottom being around $17.50 or $18.00 an hour.  The corporate mayor of Minneapolis, liberal Democrat Betsy Hodges, is also against $15, playing her role as a representative of Target. 

Yet their partial ‘cave’ shows that this campaign is a serious social threat in the U.S. and can mobilize many different elements of the working class.  It is possible that the capitalists can accede to this demand, but it will take a mass struggle nationally. It is also possible that they cannot. The demand is spreading internationally now, as poverty wages are an international phenomenon.    Leftist organizers see it, not just a way to get a needed raise for all, but as part of a transitional approach for other working class demands.

A view of this morning's Star Tribune on-line shows no coverage of this march.

(Of special note, a large fire spewed black smoke yesterday on the north side, sending the offices of NOC up in flames along with a whole block of businesses.  The 'word on the street' is that this might be arson, as a developer is trying to gentrify this area and had plans for this block.  Burning up the offices of a progressive black-led organization would be an added plus for area capitalists.  Stay tuned to see if a real arson investigation occurs.)

Red Frog

April 16, 2015

Nature – Not Just for Scenic Value or Recreation Anymore

"The Collapse of Western Civilization – A View From the Future,” by Naomi Oreskes and Erik Conway, 2015.

Another cheery take on climate change.  Two scientists got together and tried to explain what is happening, and what is going to happen if neo-liberal economic polices continue to control decision-making in the ‘west’ regarding the environmental crisis.  Unusually, they did so via ‘science fiction’ - from the view of an historian in the far future, looking back on the primitive period when humanity knew what was going on and yet didn’t act.  As a result, ‘Western’ civilization – and capitalism – collapses in 2093.  

Dead in the Future

This science fiction view from 2393 is both humorous and downright sad.  The story's view is a ‘holistic’ scientific approach that includes both society and political economics – otherwise no one can really understand how to deal with global warming or what is causing it. 

The historian calmly describes the 6^th Extinction, the decimation of Africa, South Asia, Australia and many parts of Latin America from heat or flooding; famine, mass human displacement and death; the collapse of the Greenland and West Antarctic ice sheets; the monumental failure of natural gas as a ‘bridge fuel’; a second Black Death in Europe due to the spread of insect-born diseases; the final release of methane from the arctic tundra; ocean acidification and temperature elevation; sea level rises of 9 meters; temperature rises of 11 degrees Celsius.  This event is christened “The Great Collapse” by history.  The historian lists the events in a distant way, much as we would look dispassionately on the wars of the Middle Ages or some other period of human folly, and wonder at the crudity of humanity.

The key in this short book is not some environmental crisis that came out of nowhere, as proffered by some apocalyptic writers.  The authors clearly identify runaway world capitalism – market fundamentalism - as the culprit.  Environmental costs are external to present market mechanisms, hence the future cannot be understood via the market.  The market is blind.  This is similar to what Naomi Klein does in her book, “This Changes Everything.” They call it the market failure of the ‘carbon-combustion complex,’ borrowing from Eisenhower.  The authors call the ‘invisible hand’ of traditional capitalist theory a ‘form of magical thinking.’  They are not Marxists of course, but have been forced in this direction by events.

The book is peppered with maps of areas that are underwater – Amsterdam, Antwerp, Dahka, New York, Miami and Tampa.  They point out that Carl Sagan was the first to identify the ‘greenhouse effect’ way back in 1959.  They describe a fanciful “Sea Level Denial Bill” passed in 2012 in North Carolina, US. (which actually did pass, but not under that name.)  They slyly mention that nature is not just for recreational or scenic purposes, as humans are inextricably bound up with nature.  It is odd that this even has to be explained but most people connect with nature only in a romantic or utilitiarian sense.  Ultimately global warming slows because of the illicit development by a Japanese scientist of a black lichen fungus that coats the world.  The lichen absorbs CO2 at a large rate, thus stabilizing the temperature at ‘only’ 11 degrees Celsius above the threshold for irreversible climate change. 

As scientists the authors discuss the pre-cautionary principle, the failure of logical positivism as a philosophy, the isolation in silos of typical scientists, the inability of scientists to understand or intervene in the political side of society; Fisherian statistics, Type 1 and Type 2 errors and so on.

The authors make typical liberal – and hence untrue - statements attacking ‘formerly existing socialism,’ which is predictable.  Oddly enough, they also make an appeal to conservatives by quoting Freidrich von Hayek to the effect that even Hayek understood there was a role for the state in mitigating pollution, deforestation or bad methods of farming.  As if logical discussions of Hayek were going to change minds! Their biggest point for conservatives (and liberals) is to argue that failure to act on global warming will lead to the victory of ‘neo-communism,’ as expressed by a future ‘2^nd People’s Republic of China’ and by extension, similar governments across the world who finally dispense with unplanned market societies based on mass consumerism.  They note that China was the only society that was able to plan and handle ‘The Great Collapse” due to its centralized government and planning system. 

Like good history, science fiction is also really about the present, and not merely escapism.  This book is a quick read and will sober up anyone who is unable to think ahead. 

And I bought it at Mayday Books!

Red Frog

April 10, 2015

Commune de Cortona, Toscana, Italia

Defencism or Surrender?

"Is the East Still Red? – Socialism and the Market in China,” by Gary Blank, 2015

The most complex issue in Marxism today is the class character of China.  The present conventional view among most strands of Marxists  – whether originating from Maoist, Trotskyist, Stalinist, Social-Democrat (‘democratic socialist’) or some other left tradition, is that it is a capitalism of some kind.  Blank challenges this assertion – not from the viewpoint of a pro-Beijing CCP supporter, but as an independent Marxist who studies this question exclusively.  In the process he clarifies both the factual and the ideological issues regarding China, no matter what your position.  

Chinese Workers on Strike in Shang-Hai

Blank gives a comprehensive yet succinct overview, focusing on two books, “China and Socialism:  Market Reforms and Class Struggle” by Burkett/Hart-Landsberg (“BHL”), and “Adam Smith in China” by Giovanni Arrighi.  In doing so he references many contemporary writers and comes to his own conclusions.  Of note is his ability to consider Leon Trotsky’s views, as Trotsky was the first and most prominent theoretician to witness and define a ‘degenerated’ or ‘deformed workers’ state.’ 

Blank sees good things in both books, but contends that each is wrong about China and political economy - in their either excessively-pessimistic or overly-optimistic conclusions and methods.  BHL are wrong because they ignore the state, yet right because they identify the continuing dispossession of the working class and peasantry.  Arrighi is wrong because he’s essentially given up on the prospect of socialism, yet he also identifies areas where the CCP is still influential in the right way.  Blank of course investigates the books more fully than a review can.

Blank’s view is that the last 20 years in China exhibit “many of the central hallmarks of a transition to capitalism.”  About market socialism, he contends that a “non-capitalist market society is truly illusory, “  Yet the transition to capitalism is not complete in China and is ‘subject to serious contention by workers, peasants and sections of the ruling stratum (CCP officials and enterprise managers) that still reproduce themselves in non-capitalist ways.”  Unlike most observers who only look at economic facts, Blank also considers the ‘state’ and working class struggle as key issues – which are nearly always ignored by leftists who think China is already ‘state capitalist’ or capitalist.  Ultimately what defines modern capitalism is its capture of the state apparatus.   It is not merely a mode of economic production.   He notes that it was the failure of the Chinese merchant class to seize the feudal state that stymied the development of modern capitalism in China long ago.  This process of state capture occurred in England and Europe first, which made European capitalism possible.  The state, as any Marxist knows, is not a neutral body - it is allied to one class or another, and no class can dominate society without one.

Blank discusses the historical positions of various tendencies in regard to the state.  He gives short shrift to the contention that China is ‘state capitalist’ either from the ultra-left position of Alex Callinicos or the ‘progressive’ position of Samir Amin.  State capitalism in whatever form would have to be a new stage of capital inserting itself between capitalism and workers’ rule – a ‘stage’ unanticipated by any Marxist until Max Schachtman.  Blank himself follows a definition of “bureaucratic collectivism,” which he considers a refinement over Trotsky’s position about ‘degenerated’ and ‘deformed’ workers’ states.  Both are transitional societies that never reached socialism, but differ in the definition of the bureaucracy.  He contends that, unlike Trotsky’s ‘orthodox Marxist” position that the bureaucracy is a parasitic ‘caste’- the ‘bureaucratic collectivist’ view sees it as a new social class.  As I might ask about state capitalism, which ‘new’ class might that be?  Essentially this new class would introduce a new historical phase that all capitalist societies ‘might’ have to go through.   This is reminiscent of the stagism of the Second International before WWI, or the endless ‘popular front’ of reformist socialism. 

Blank goes through the various ‘reforms’ in China from the 1978 plenum in which market socialism was initiated by Deng Xiaoping; the 1992 turn to the IMF and export production after Deng’s ‘southern tour’; 1997 and a turn towards mass privatization; a turn in 2008 in which land use rights were allowed for sale.  His central contention is that the Chinese Army is still controlled by the CCP; the major banking sector is still controlled by the CCP; the major energy, mineral and transport areas are still controlled by the CCP; that agriculture has not been taken fully out of the hands of the peasants or the local government units; that the yuan is not convertible; that there are capital controls in place in the Chinese economy; that state banks still loan money to ‘money-losing’ concerns to avoid unemployment (called ‘malign distribution’). And most importantly, this reflects that peasant / working class / CCP bureaucrat resistance has time and time again delayed or stopped the full transition to a market society – even after 37 years of trying.  There is still a left wing in the CCP and a ‘New Left’ outside it that opposes market efforts.  The ideas of Marxism and socialism still have some weight in Chinese society among the lower classes and are still a material force. 

The program to make ‘market socialism’ work is like trying to square a circle.  It cannot be done and puts the bureaucracy in a bind.  Either a full market will depose them from power, as many bureaucrats have found themselves not benefitting by privatization - or a full top-down command economy will stifle productivity, leading to stagnation.  This problem of productivity was/is an almost fatal problem in every single workers’ state, as the economy was not really in the hands of the working class through forms of workers’ democracy.  This crushed productivity and initiative.  Blank thinks that no real working class democracy has ever existed in China even under Mao; nor a high enough level of productivity and technology to ease labor.  Both of which were prescribed by Marx in order to reach actual socialism.  Marx considered socialism to be the lower level of a classless society that would incidentally not need a state. 

Blank contends  that the new neo-liberal billionaire ‘princelings’ in the Party are concentrated in finance and export industries and do not yet dominate the Party. The export sector crashed in 2008 due to the capitalist crisis in the West.  It was only the most extraordinary plan by the CCP after that crash that stimulated Chinese production to an almost unheard of degree,  It basically provided a stabilizer for the whole world economy – much as the USSR and eastern Europe used to do when they still existed as non-capitalist states.  A neo-liberal capitalist economy would have not done this – perhaps even the reverse. The Chinese government actions in regard to climate change also indicate that the 'market' is not dominating this issue either.

Blank makes fun of the contention that a mass social revolution can be overturned by a single plenum meeting in the 1970s, as contended by orthodox Maoists like William Hinton and their academic fellow travelers in Monthly Review.  Philosophically, this orthodox Maoist idea is rank idealism.  He points out that Burkett-Hart cannot really date their ‘counter-revolution’ - nor can many others.  After all, the contention that capitalism can slip into power is a sort of ‘reformism in reverse.’  A ‘state’ suddenly just turns into its opposite without the collapse or defeat of its army, the ‘state on wheels’ as it was once called.  Or without the collapse of the power of the proletarian/bureaucrat Party.  Reversing a mass revolution in the back room.  Again, capitalism is not merely an economic system – but a political/economic system.  This is why Marxists refer to ‘political economy’ – not just ‘economics.’   Which is why not just economic issues have to be dealt with.  Did the Bolshevik revolution triumph in October 1917?  Or only when the main industries were nationalized?  The question answers itself.  We can date the end of the USSR; we can date the end of the Polish workers state, the Hungarian workers’ state, etc.  Not very difficult.  Not so in China.  Why? 

Ultimately behind Blanks’ views are a sort of ‘defencism.’  It is no accident that the US is making China a new target, encircling it militarily.  It is no accident that the US opposes a Chinese-controlled international bank.  Nor is it unusual for the allies of American capitalism in the CCP and among Chinese neo-liberals to still call for more ‘liberalization’ and more focus on ‘growth.’  Or why they block with the Chinese right-wing all the time.  Why?  Because China is a new ‘imperialist’ power?   Actually the capitalists know that the situation regarding ‘communism’ is not anywhere near complete in China.  Even capitalist banks are not agreeing on what part of the economy is controlled by the state and what isn’t – some see low, others high.  The point is that China is still ‘transitioning’ – the question is not settled.  Intellectual surrender by the Left is no help to the Chinese masses.  If Leftists are actually internationalists, failing to understand what to defend within China will not allow them to intervene in China in the right way.  And many leftists – like Schactman so long ago – have already surrendered the gains of the Chinese revolution that still remain.  It is time to defend China in the right way.

Prior reviews on China:  “Minqi Li’s, “The Rise of China and the Demise of the Capitalist World Economy,” Wang Hui’s “The End of the Revolution and the Limits of Modernity,” Samir Amin's“The Implosion of Contemporary Capitalism” and Yeuzhi Zhao's “China: The Fall of Bo Xilai & the “Chongqing Model” from Monthly Review. (Use blog search box, lower left.)  

And I bought it at Mayday Books!

Red Frog

April 7, 2015

Bandiera Rossa Triumfera!

Commune de Cortona, Toscana, Italia