Mobile phone companies have failed – it's time to nationalise them

It may sound like off-the-wall leftiness, but there are clear and convincing arguments for a nationalised mobile phone network

• 
• • Owen Jones
  • The Guardian, Monday 11 August 2014

Mobile phone companies put profit before the needs of the consumer. Photograph: Alamy

Nationalisation is a taboo among the political and media elite, its mere mention guaranteed to provoke near-instantaneous shrieks of "dinosaur!" and "go back to the 1970s". Imagine the Establishment's horror, then, when a succession of recent polls found that nearly seven out of 10 Britons wanted the renationalisation of energy, and two-thirds of the electorate wanted rail and Royal Mail back in public hands. Even Ukip voters – those notorious bastions of pinko leftiness – overwhelmingly backed the renationalisation of key utilities. While our political overlords are besotted with Milton Friedman, on many issues the public seem to be lodged somewhere between John Maynard Keynes and Karl Marx.

Previously state-owned services are one thing: but what about the mobile phone network? Even the very suggestion is inviting ridicule. But if people are so keen for public ownership of rail, why is the case any weaker for mobile phones? They are a natural monopoly, and the fragmentation of the telecommunications network is inefficient. Their service is often poor because they put profit ahead of the needs of the consumer. And rather than being the product of a dynamic free market and individual plucky entrepreneurs, their technological success owes everything to the public sector. It might seem like barking leftiness on speed, but the arguments for nationalising phone networks are less absurd than they might appear.

The eternal irritation of any mobile phone user is the signal blackspot. They affect everyone. Even David Cameron has had to return early from his holidays in Cornwall because of problems with signal "not-spots". Nor is it only a problem for people in rural areas. Richard Brown lives at the top of a hill in Brighton, and he can't get a signal withVodafone, despite its database claiming excellent coverage. "So for £100 I bought a 'Sure Signal' device – or in other words paid £100 to enable Vodafone to deliver me the core service that I am already paying upwards of £30 a month for." It plugs into the router and drains power, but seems to make little difference.

In his south London flat, EE customer Ben Goddard's mobile phone almost always registers no bars. With missed calls from hospitals and family members, he's been forced to install a house phone. "Zero signal in east London," says fellow EE user Dom O'Hanlon. "No attempt to fix, help or offer customer service." EE seem to have abandoned its earlier incarnation as 'Everything Everywhere' because it was so widely mocked as 'Nothing Nowhere'. When Ben Parker switched from EE to Vodafone, he found that his signal did improve, but his data access died, forcing him to depend on Wi-Fi.

If you have tried to deal with the customer service arm of the mobile phone giants, then please do not read on, because you will only relive traumas you would rather forget. After Grace Garland was signed up to EE from her Orange contract, her 4G and internet access all but vanished for several months. Errors at EE's end left her being charged double, and its system believed she had run out of her data allowance, leaving her with no access to crucial work emails. "No one took my concerns seriously," she says. "They told me they had actually subcontracted a lot of their technical support to outside parties who can only be contacted by them by email, making everything slow and ineffectual." Of course, mobile phone companies do not provide detailed data about their national coverage, leaving customers to choose on the basis of factors such as price.

According to OpenSignal – a company that is ingeniously working out national signal coverage by tracking data from mobile users – the average British user has no signal 15% of the time. And here is where the point about a natural monopoly creeps in. Mobile phone companies build their masts, but don't want to share them with their competitors. That means that rather than having a network that reflects people's needs, we are constantly zipping past masts we are locked out of. In many rural areas, mobile phone companies are simply making the decision that there are not enough people to justify building more masts. Profit is prioritised over building an effective network that gives all citizens access.

 Signal failure … a woman struggles to make a call in Hythe, Kent. Photograph: Alamy

To be fair to the government, it is proposing action to compel companies to share masts. But OpenSignal's Samuel Johnson says that this would only cover phone calls and text messages, not data, and would reduce our time without signal to about 7%. Why not force them to share all data? "Well, it'd be bad for competition, because it would hit their profits," he says. Not only that, but even if the government's modest measures are implemented, the potential financial hit to mobile phone companies would deter them from clamping down on the final 7%.

Customers are ripped off in other ways. The former Daily Telegraph journalist George Pitcher has pointed out that the typical "free phone when you sign a long contract" offer is a scam. In a typical £32-a-month contract spread over two years, you're coughing up £768, even though the phone is worth just £200. Get a £15-a-month SIM card-only deal and buy a £10 mobile off eBay instead, he suggests, and you'll save £400. "Perhaps the mobile phone companies could be nationalised and given to the banks?" he concludes. Last part aside, Pitcher has it in one. And then there's the derisory cost to the company of sending snippets of data such as text messages – which can cost the user 14p a pop. Last year, Citizens Advice received a whopping 28,000 complaints about mobile phones, often from customers who could not be released from contracts even if there was no signal in their area.

Neither are mobile phones themselves triumphs of the private sector, or even close. "It's not far-fetched to suggest nationalisation," says economics professor Mariana Mazzucato, "because these companies aren't the result of some individual entrepreneur in the garage. It was all state-funded from the start." As I write this, I fiddle occasionally with my iPhone: in her hugely influential book The Entrepreneurial State, Mazzucato looks at how its key components, like touchscreen technology, Siri and GPS are the products of public-sector research. That goes for the internet, too – the child of the US military-industrial complex and the work of Sir Tim Berners-Lee at the state-run European research organisation Cern in Geneva.

"It's actually the classic case of economies of scale, or a natural monopoly, and the decision you'd have to make is whether it's one firm or the state running the whole thing," says Mazzucato. "When you chop it up, you lose the benefits of cost and efficiency from having one operator." Many network providers spend more money on share buybacks than research and development, retarding further technological progress in the name of profit. And then there's Vodafone, which has become one of the key targets of the anti-tax avoidance movement. It's cheeky, really: leave the state to fund the technology your business relies on, and then do everything you can to avoid paying anything back.

There are many reasons why a fragmented mobile phone network is bad for the consumer. Dr Oliver Holland of King's College London's Centre for Telecommunications Research sympathises with the idea of a nationalised network on technical grounds. This is how he explains it. Each mobile phone company is allotted a slice of the frequency spectrum. But at any given time, lots of customers belonging to one company may be using their mobile phones. "You will probably have a reduction in the quality of the service, because they're all competing for the spectrum." Customers belonging to another company may be using the service less at the same time, leaving their slice of the spectrum to go to waste when others need it. "If you had just one body, instead of dividing the spectrum into chunks, they can use it more efficiently," he says.

The case for nationalising mobile phone companies is actually pretty overwhelming. It would mean an integrated network, with masts serving customers on the basis of need, rather than subordinating the needs of users to the needs of shareholders. Profits could be reinvested in research and development, as well as developing effective customer services. Rip-off practices could be eradicated. It doesn't have to be run by a bunch of bureaucrats: consumers could elect representatives on to the management board to make sure the publicly run company is properly accountable. Neither does nationalisation have to be costly: Clement Attlee's postwar Labour government pulled it off by swapping shares for government bonds. So yes, it might sound far-fetched, the sort of proposal that lends itself to endless satire from the triumphalist neoliberal right. But next time you're yelling at your signal-free mobile phone, it might not seem so wacky after all.

Meritocracy is a myth

James Bloodworth in The Independent

What do you want to be when you grow up? I remember a careers advisor asking me just that question shortly before my sixteenth birthday. Like most of my peers I had very little idea as to what I wanted to do with my life when the seemingly endless horizon of school came to an end. Drink beer, smoke cigarettes and chase girls was about the sum of it.

Looking back, though, the question was a strange one. We insist on asking children what they want to do with their lives when most of the time it’s set in stone when they pull on their first school uniform. If they are born poor they will almost certainly stay poor; if their parents have money then it’s likely that they will too. The more unequal a society is the truer this statement becomes. 

Yes we insist on telling children that they can be ‘whatever they want to be’, knowing full well that crushing disappointment lies further in their future. Every nation relies to some extent on fairy tales. In Britain we cling to the idea that you can be or do anything in life so long as you put your mind to it. In the process we hand our politicians the one thing they can use to justify the obscene privileges at the top and the revolting squalor at the bottom: the indomitable myth of meritocracy.

Meritocracy is what’s politely called a dead duck. A child from a ‘modest’ background can only go from rags to riches in the sense that a human being can take off if they flap their arms around wildly enough. A disadvantaged child will nearly always and everywhere become a disadvantaged adult, and if you ignore the right-wing rhetoric and look at the data you might be a little less keen on hearing the 'M' word in future.

The children of wealthier parents are more likely to go to the best schools (houses in desirable catchment areas cost on average 42 per cent more), eat the best food, have access to ‘high culture’ and have a quiet place to do homework when they get home from school. As a result, poor but bright children get overtaken by their less intelligent classmates from wealthier backgrounds in the very first years of schooling, according to a 2007 study. 

As children become teenagers these inequalities are entrenched further. Around 10 per cent of young people at the bottom rung of the social ladder go to university compared with over 80 per cent of those from professional or managerial backgrounds. A student from a private school is 55 times more likely to go to Oxford or Cambridge University than a state school student on free school meals. And as universities minister David Willetts likes to point out, graduates will earn around £100,000 more over a lifetime than non-graduates.

Thomas Piketty’s ground-breaking book Capital in the 21st Century looks at how wealth concentrates when the returns on capital are higher than economic growth. Or in plain English, how it’s easier for a person who already has lots of money to make more of it. But it isn’t only wealth that concentrates; opportunity does too. Or as Picketty’s predecessor Karl Marx put it, “men make their own history, but they do not make it as they please; they make it…under circumstances…given and transmitted from the past”.

Take a look at political life in Britain today and the truth of that statement becomes self-evident. When Margaret Thatcher came to power in 1979 around 40 per cent of Labour MPs had done some form of manual or clerical work before they entered parliament. By 2010 that figure had plummeted to just 9 per cent. The shape of the labour market undoubtedly accounts for some of the change, but the extent to which parliament is rapidly becoming the talking shop of the middle classes is evident in other ways too. An astonishing 91 per cent of the 2010 intake of MPs were university graduates and 35 per cent were privately-educated. This is a rise on previous elections and, in the case of the latter, compares to just 7 per cent of the school age population as a whole.

If nothing else, the fact that a tweed-suited former stockbroker can pose as just an ordinary bloke when contrasted with other politicians should set the alarm bells ringing. The ossification of politics is made worse by a media which increasingly resembles the establishment talking to itself.

The unpalatable truth that no politician will dare acknowledge is this: meritocracy can only exist if the rich have a little less and the poor a little more. Countless studies show that social mobility improves in more equal societies. Norway has the greatest level of social mobility, followed by Denmark, Sweden and Finland. Britain and the US are the most unequal western societies on earth in terms of income distribution and, surprise surprise, have much lower rates of social mobility than their more equal Scandinavian counterparts.

Despite the well-intentioned rhetoric of Ed Miliband, we are not ‘one nation’, and the first step in creating a genuine meritocracy would be an admission that the interests of the banker are not the same as those of the nurse or the refuse collector. While huge inequalities exist there can be no serious talk of social mobility or meritocracy, and careers advisors up and down the country will have to keep on lying to our children.

The Problem with the Pankaj Mishras and Arundhati Roys of Indophiles

Omar Ali in Outlook India

Pankaj Mishra and Arundhati Roy have both spoken by now about the election results in India and if you are a Modi voter, you are likely not too happy with their views. I would like to suggest that if you are not a Modi voter, you should also be a bit unhappy at how much attention these particular writers get as “the voice of the Left/Liberal/Secular side of India”. I really think that far too many highly educated South Asian people read Pankaj Mishra, Arundhati Roy and their ilk.

Obviously, I also believe far too many people in the Western elite read them, but at least their admiration is more understandable. They need native informants who can reinforce their preconceived notions and if these native informants helpfully repeat the Western Left’s own pet theories back to them, so much the better. That is not my main concern today. 

I am concerned that too many good, intelligent Desi people who want to make a positive contribution to their societies and whose elite status puts them in a position to do so are lost to useful causes because they have been enthralled by fashionable writers like Pankaj Mishra, Arundhati Roy and Tariq Ali (heretofore shortened to Pankajism, with any internal disagreements between various factions of the People’s Front of Judea being ignored).
The opportunity cost of this mish-mash of Marxism-Leninism, postmodernism, “postcolonial theory”, environmentalism and emotional massage (not necessarily in that order) is not trivial for liberals and leftists in the Indian subcontinent. It's worth noting that there is no significant market for Pankajism in China or Korea for advice about their own societies, though they may use it as an anti-imperialist propaganda tool should the need arise; a fact that may have a tiny bearing on some of the difference between China and India.

I believe the damage extends beyond self-identified liberals and leftists; variants of Pankajism are so widely circulated within the English speaking elites of the world that they seep into our arguments and discussions without any explicit acknowledgement or awareness of their presence. 

What I present below is not a systematic theses (though it is, among other things, an appeal to someone more academically inclined to write exactly such a thesis) but a conversation starter:

1. There are some people who have what they regard as a Marxist-Leninist worldview. This post is NOT about them. Whether they are right or wrong (and I now think the notion of a violent “people’s revolution” is wrong in some very fundamental ways), there is a certain internal logic to their choices. 

They do not expect electoral politics and social democratic reformist parties to deliver the change they desire, though they may participate in such politics and support such parties as a tactical matter (for that matter they may also support right wing parties if the revolutionary situation so demands). 

They are also very clear about the role of propaganda in revolutionary politics and therefore may consciously take positions that appear simplistic or even silly to pedantic observers, in the interest of the greater revolutionary cause. 

Their choices, their methods and their aims are all open to criticism, but they make some sort of internally consistent sense within their own worldview. In so far as their worldview fails to fit the facts of the world, they have to invent epicycles and equants to fit facts to theory, but that is not the topic today. IF you are a believer in “old fashioned Marxist-Leninist revolution” and regard “bourgeois politics” as a fraud, then this post is not about you.

2. But most of the left-leaning or liberal members of the South Asian educated elite (and a significant percentage of the educated elite in India and Pakistan are left leaning and/or liberal, at least in theory; just look around you) are not self-identified revolutionary socialists. 

I deliberately picked on Pankaj Mishra and Arundhati Roy because both seem to fall in this category (if they are committed “hardcore Marxists” then they have done a very good job of obfuscating this fact). 

Tariq Ali may appear to be a different case (he seems to have been consciously Marxist-Leninist and “revolutionary” at some point), but for all practical purposes, he has joined the Pankajists by now; relying on mindless repetition of slogans and formulas and recycled scraps of conversation to manage his brand. 

If you consider him a Marxist-Leninist (or if he does so himself), you may mentally delete him from this argument.

3. The Pankajists are not revolutionaries, though they like revolutionaries and occasionally fantasize about walking with the comrades (but somehow always make sure to get back to their pads in London or Delhi for dinner). 

They are not avowedly Marxist, though they admire Marx; they strongly disapprove of capitalists and corporations, but they have never said they would like to hang the last capitalist with the entrails of the last priest. 

So are they then social democrats? Perish the thought. They would not be caught dead in a reformist social democratic party.

4. They hate how Westernization is destroying traditional cultures, but every single position they have ever held was first advocated by someone in the West (and 99% were never formulated in this form by anyone in the traditional cultures they apparently prefer to “Westernization”). 

In fact most of their “social positions” (gay rights, feminism, etc) were anathema to the “traditional cultures” they want to protect and utterly transform at the same time. They are totally Eurocentric (in that their discourse and its obsessions are borrowed whole from completely Western sources), but simultaneously fetishize the need to be “anti-European” and “authentic”.

Here it is important to note that most of their most cherished prejudices actually arose in the context of the great 20th century Marxist-Leninist revolutionary struggle. e.g. the valorization of revolution and of “people’s war”, the suspicion of reformist parties and bourgeois democracy, the yearning for utopia, and the feeling that only root and branch overthrow of capitalism will deliver it. These are all positions that arose (in some reasonably sane sequence) from hardcore Marxist-Leninist parties and their revolutionary program (good or not is a separate issue), but that continue to rattle around unexamined in the heads of the Pankajists.

The Pankajists also find the “Hindu Right” and its fascist claptrap and its admiration of “strength” and machismo alarming, but Pankaj (for example) admires Jamaluddin Afghani and his fantasies of Muslim power and its conquering warriors so much, he promoted him as one of the great thinkers of Asia in his last book. This too is a recurring pattern. Strong men and their cults are awful and alarming, but also become heroic and admirable when an “anti-Western” gloss can be put on them, especially if they are not Hindus. i.e. For Hindus, the approved anti-Western heroes must not be Rightists, but this second requirement is dropped for other peoples.

They are proudly progressive, but they also cringe at the notion of “progress”. They are among the world’s biggest users of modern technology, but also among its most vocal (and scientifically clueless) critics. Picking up that the global environment is under threat (a very modern scientific notion if there ever was one), they have also added some ritualistic sound bites about modernity and its destruction of our beloved planet (with poor people as the heroes who are bravely standing up for the planet). All of this is partly true (everything they say is partly true, that is part of the problem) but as usual their condemnations are data free and falsification-proof. They are also incapable of suggesting any solution other than slogans and hot air.

Finally, Pankajists purportedly abhor generalization, stereotyping and demagoguery, but when it comes to people on the Right (and by their definition, anyone who tolerates capitalism or thinks it may work in any setting is “Right wing”) all these dislikes fly out of the window. They generalize, stereotype, distort and demonize with a vengeance.
You get the picture...there are emotionally satisfying and fashionable sound bites that sound like they are saying something profound, until you pay closer attention and most of the meaning seems to evaporate. 

My contention is that what remains after that evaporation is pretty much what any reasonable “bourgeois” reformist social democrat would say.

Pankaj and Roy add no value at all to that discourse. And they take away far too much with sloganeering, snide remarks, exaggeration and hot air.

5. This confused mish-mash is then read by “us people” as “analysis”. Instead of getting new insights into what is going on and what is to be done, we come out by the same door as in we went; we come out with our opinions seemingly validated by someone who uses a lot of big words and sprinkles his “analysis” with quotes from serious books. 
We then discuss this “analysis” with friends who also read Pankaj and Arundhati in their spare time. Everyone is happy, but I am going to make the not-so-bold claim that you would learn more by reading The Economist, and you would be harmed less by it. 

6. Pankajism as cocktail party chatter is not a big deal. After all, we have a human need to interact with other humans and talk about our world, and if this is the discourse of our subculture, so be it. But then the gobbledygook makes its way beyond those who only need it for idle entertainment. Real journalists, activists and political workers read it and it helps, in some small way, to further fog up the glasses of all of them. The parts that are useful are exactly the parts you could pick up from any of a number of well informed and less hysterical observers (if you don’t like theEconomist, try Mark Tully). What Pankajism adds is exactly what we do not need: lazy dismissal of serious solutions, analysis uncontaminated by any scientific and objective data, and snide dismissal of bourgeois politics.

7. If and when (and the “when” is rather frequent) reality A fails to correspond with theory A, Pankajists, like Marxists, also have to come up with newer and more complicated epicycles to save the appearances; and we then have to waste endless time learning the latest epicycles and arguing about them. 

All of this while people in India (and to a lesser and more imperfect extent, even in Pakistan) already have a reasonably good constitution and, incompetent and corrupt, but improvable institutions. There are large political parties that attract mass support and participation. There are academics and researchers, analysts and thinkers, creative artists and brilliant inventors, and yes, even sincere conservatives and well-meaning right-wingers. 

I think it may be possible to make things better, even if it is not possible to make them perfect. “People’s Revolution” (which did not turn out well in any country since it was valorized in 1917 as the way to cut the Gordian knot of society and transform night into day in one heroic bound) is not the only choice or even the most reasonable choice. 
Strengthening the imperfect middle is a procedure that is vastly superior to both Left and Right wing fantasies of utopian transformation. The system that exists is probably not irreparably broken and can still avoid falling into fascist dictatorship or complete anarchy, but my point is that even if they system is unfixable and South Asia is due for huge, violent revolution, these people are not the best guide to it.

Look, for example at the extremely long article produced by Pankaj on the Indian elections. This is the opening paragraph:

In A Suitable Boy, Vikram Seth writes with affection of a placid India's first general election in 1951, and the egalitarian spirit it momentarily bestowed on an electorate deeply riven by class and caste: "the great washed and unwashed public, sceptical and gullible", but all "endowed with universal adult suffrage.

Well, was that good? Or bad? Or neither? Were things better then, than they are now? There is also a hint that universal adult suffrage was a bit of a fraud even then. That seems to be the implication, but in typical Pankaj style, this is never really said outright (that may bring up uncomfortable questions of fact). I doubt if any two readers can come up with the same explanation of what he means; which is usually a good sign that nothing has been said.

There follows a description of why Modi and the RSS are such a threat to India. This is a topic on which many sensible things can be said and he says many of them, but even here (where he is on firmer ground, in that there are really disturbing questions to be asked and answered) the urge to go with propaganda and sound bites is very strong. And the secret of Modi’s success remains unclear. 

We learn that development has been a disaster, but that people seem to want more of it. If it has been so bad, why do they want more of it? Because they lack agency and are gullible fools led by the capitalist media? If people do not know what is good for them, and they have to be told the facts by a very small coterie of Western educated elite intellectuals, then what does this tell us about “the people”? And about Western education?

Supporters will say Pankaj has raised questions about Indian democracy and especially about Modi and the right-wing BJP that need to be asked. And indeed, he has. But here is my point: the good parts of his article are straightforward liberal democratic values. Mass murder and state-sponsored pogroms are wrong in the eyes of any mainstream liberal order. If an elected official connived in, or encouraged, mass murder, then this is wrong in the eyes of the law and in the context of routine bourgeois politics. That politics does provide mechanisms to counter such things, though the mechanisms do not always work (what does?). 

But these liberal democratic values are the very values Pankaj holds in not-so-secret contempt and undermines with every snide remark. It may well be that “a western ideal of liberal democracy and capitalism” Is not going to survive in India. But the problem is that Pankaj is not even sure he likes that ideal in the first place. In fact, he frequently writes as if he does not. But he is always sufficiently vague to maintain deniability. There is always an escape hatch. He never said it cannot work. But he never really said it can either... 

To say “I want a more people friendly democracy” is to say very little. What exactly is it that needs to change and how in order to fix this model? These are big questions. They are being argued over and fought out in debates all over the world. I am not belittling the questions or the very real debate about them. But I am saying that Pankajism has little or nothing to contribute to this debate. 

Read him critically and it soon becomes clear that he doesn’t even know the questions very well, much less the answers... But he always sounds like he is saying something deep. And by doing so, he and his ilk have beguiled an entire generation of elite Westernized Indians (and Pakistanis, and others) into undermining and undervaluing the very mechanisms that they actually need to fix and improve. It has been a great disservice.
By the way, the people of India have now disappointed Pankaj so much (because 31% of them voted for the BJP? Is that all it takes to destroy India?) that he went and dug up a quote from Ambedkar about the Indian people being “essentially undemocratic”. I can absolutely guarantee that if someone on the right were to say that Indians are essentially undemocratic, all hell would break loose in Mishraland.
See this paragraph: 

In many ways, Modi and his rabble – tycoons, neo-Hindu techies, and outright fanatics— are perfect mascots for the changes that have transformed India since the early 1990s: the liberalisation of the country's economy, and the destruction by Modi's compatriots of the 16th-century Babri mosque in Ayodhya. Long before the killings in Gujarat, Indian security forces enjoyed what amounted to a licence to kill, torture and rape in the border regions of Kashmir and the north-east; a similar infrastructure of repression was installed in central India after forest-dwelling tribal peoples revolted against the nexus of mining corporations and the state. The government's plan to spy on internet and phone connections makes the NSA's surveillance look highly responsible. Muslims have been imprisoned for years without trial on the flimsiest suspicion of "terrorism"; one of them, a Kashmiri, who had only circumstantial evidence against him, was rushed to the gallows last year, denied even the customary last meeting with his kin, in order to satisfy, as the supreme court put it, "the collective conscience of the people".

Many of these things have indeed happened (most of them NOT funded by corporations or conducted by the BJP incidentally) but their significance, their context and, most critically, the prognosis for India, are all subtly distorted. Mishra is not wrong, he is not even wrong. To try and take apart this paragraph would take up so much brainpower that it is much better not to read it in the first place. There are other writers (on the Left and on the Right) who are not just repeating fashionable sound bites. Read them and start an argument with them. Pankajism is not worth the time and effort. There is no there there…

PS: I admit that this article has been high on assertions and low on evidence. But I did read Pankaj Mishra’s last (bestselling) book and wrote a sort of rolling review while I was reading it. It is very long and very messy (I never edited it), but it will give you a bit of an idea of where I am coming from. You can check it out at this link: Pankaj Mishra’s tendentious little book

Why Karl Marx was right

Lee Sustar explains why mainstream economists are referring to Karl Marx in discussions of the world economy--and why they won't talk about the whole Marx.

September 13, 2011

ECONOMIST NOURIEL Roubini, whose predictions of the financial crash of 2008 earned him the nickname "Dr. Doom," has referred his patients to a specialist in capitalist crisis: Dr. Karl Marx.

In an interview with the Wall Street Journal, Roubini said:

Karl Marx had it right. At some point, capitalism can destroy itself. You cannot keep on shifting income from labor to capital without having an excess capacity and a lack of aggregate demand. That's what has happened. We thought that markets worked. They're not working. The individual can be rational. The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else's income and consumption. That's why it's a self-destructive process.

For several hours on August 12, the Journal website ran the video of the interview as a top story, under the headline, "Roubini: Marx was Right."

Considering that the first edition of Marx's three-volume masterwork Capital appeared in 1867, Roubini's revelation isn't exactly news to socialist opponents of capitalism. But given the intractable nature of the current crisis--a deep global recession, a weak recovery in the traditional core of the system in the U.S. and Europe, and now the possibility of a lurch into a second recession--mainstream, or bourgeois, economics has been exposed as ideologically driven and incapable of offering solutions.

Stimulus spending, championed by liberal followers of the economist John Maynard Keynes, was in full swing two years ago. It staved off total economic collapse after the financial crash, but failed to produce a sustained boom and led to big government budget deficits.

That opened the door to the free-market champions of the so-called Austrian economic school of Friedrich von Hayek, who argued that slashing spending was key to an economic revival--only to see such measures choke off growth in Europe and, more recently, the U.S.

But in August, stock markets gyrated worldwide amid a worsening European debt crisis, a near-stall in U.S. economic growth and a slowdown even in China, home of the world's most dynamic big economy. Suddenly, the ideological crisis that accompanied the 2008 crash was palpable once more as the world system appeared on the brink of a new recession.

- - - - - - - - - - - - - - - -

ROUBINI, A professor at New York University, made his name--and quite a bit of money--by telling the unvarnished truth to Big Capital before the Wall Street meltdown hit. He's done so once again, this time referring to Marx for an explanation.

In his interview with the Journal, Roubini argued that the U.S. economy is flagging because business is hoarding cash--more than $2 trillion by one estimate--rather than investing it in factories, new equipment and hiring workers. As he put it:

If you're not hiring workers, there's not enough labor income, enough consumer confidence, enough consumption, not enough final demand. In the last two or three years, we've actually had a worsening, because we've had a massive redistribution of income from labor to capital, from wages to profits.

That shift has taken place not during the crisis, but during the recovery, as economist David Rosenberg pointed out earlier this year when he noted that the "labor share of national income has fallen to its lower level in modern history," 57.5 percent in the first quarter of 2011, compared to 59.8 percent when the recovery began. While that might seem like a small change, given the $14.66 trillion size of the U.S. economy, it's huge.

In alluding to this trend, Roubini is apparently referring to Marx's observation about a central contradiction of capitalism. "The consuming power of the workers is limited partly by the laws of wages, partly by the fact that they are used only as long as they can be profitably employed by the capitalist class," Marx wrote in Capital Volume 3. "The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses."

It's wrong to assume, Marx contended, that capitalists limit their investments during a crisis because "the absolute consuming power of society" has reached its limit. On the contrary, the unemployed want jobs and workers desire a higher standard of living as the slump wears on.

But during crises, capitalism can't deliver, even when business has plenty of capital to invest. That's because capitalists won't put their money into building factories and offices and hiring workers--as Roubini pointed out--unless they have a reasonable chance of making a profit. Otherwise, they sit on their money.

"The capital already invested is then, indeed, idle in large quantities," Marx explained. "Factories are closed, raw materials accumulate, finished products flood the market as commodities. Nothing is more erroneous, therefore, than to blame a scarcity of productive capital for such a condition."

The result, Marx wrote, was both a "superabundance of productive capital" and "paralyzed consumption"--a fairly accurate description of recent trends in the U.S. economy.

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THE BIGGER questions are these: Why do such capitalist crises come about at all? And why are some downturns in the economy mild recessions, while others generate protracted crises, like the Great Depression of the 1930s or the "depression-with-a-small-d" that's gripped the world economy since late 2007?

Marx wasn't the first to observe what today's mainstream economists call the "business cycle"--the economic slumps that take place every few years. His contribution was to delve into the reasons for that pattern. He concluded that the internal contradictions of capitalism doomed the system to periodic, highly destructive crises.

The root of these crises is in the unplanned and competitive nature of capitalist production. For the capitalist, what matters isn't meeting social needs, but obtaining the maximum profit. If obtaining profit is possible from producing a life-saving medical device like a heart pacemaker, that's fine. But if more money can be made by producing junk food or nuclear weapons, greater investment flows into those industries instead.

Meanwhile, competition puts capitalists under constant pressure. They have to make sure that workers produce goods in as little time as possible--at what Marx called the "socially necessary labor time" required to produce a particular commodity. Otherwise, more efficient capitalists will drive them out of business. Thus capitalists are constantly compelled to invest in labor-saving machinery to cut production costs.

That is the secret of capitalist profitability. For example, new technologies may allow workers to produce enough to cover the costs of their wages in, say, just three hours instead of the four needed previously. The result is an increase in labor time spent working just for the capitalist--increasing what Marx called "surplus value," which is the source of profits.

But a portion of surplus value must also be reinvested in the production process. Refusing to do so is not an option for capitalists--who live by the rule of eat or be eaten. To the capitalist, Marx wrote in Capital Volume 1, the motto is:

Accumulate, accumulate! That is Moses and the prophets!...save, save, i.e., reconvert the greatest possible portion of surplus-value, or surplus-product into capital! Accumulation for accumulation's sake, production for production's sake: by this formula classical economy [the original bourgeois economics] expressed the historical mission of the bourgeoisie, and did not for a single instant deceive itself over the birth-throes of wealth.

The drive to accumulate is blind and chaotic. As Roubini recognized, "markets aren't working" because what is rational for an individual person or corporation--the maximization of profit by pushing down labor costs--can be irrational for the system as a whole.

During the upswing of the business cycle, the problems are largely hidden. As long as profits are high and credit is available, companies can borrow to invest in new production and hire new workers. Pundits proclaim that recessions are a thing of the past.

But even as production expands, profits are squeezed as new entrants flood the market. Companies go bust, which hits their banks hard. The banks, in turn, raise interest rates or simply refuse to lend, which triggers further bankruptcies. Factory closings and mass layoffs ensure--and, in the modern era, job cuts hit the public sector as tax revenues decline.

In the section of Capital Volume 3 quoted above, Marx described how the crisis can seem to erupt out of nowhere. Thanks to the extension of credit, he wrote:

[E]very individual industrial manufacturer and merchant gets around the necessity of keeping a large reserve fund and being dependent upon his actual returns. On the other hand, the whole process becomes so complicated, partly by simply manipulating bills of exchange [i.e., checks and promises of future payment], partly by commodity transactions for the sole purpose of manufacturing bills of exchange, that the semblance of a very solvent business with a smooth flow of returns can easily persist even long after returns actually come in only at the expense partly of swindled money-lenders and partly of swindled producers. Thus business always appears almost excessively sound right on the eve of a crash.

Marx's description of how credit could delay, but then exacerbate, a crash applies to the financial debacle of 2008, which involved no small amount of the kind of manipulation and swindling Marx saw in his day. Set aside the toxic alphabet soup of today's financial assets--CDS, CDO and MBS--and Marx's analysis of the role of bankers sounds familiar: "the entire vast extension of the credit system, and all credit in general, is exploited by them as their private capital."

The development of credit, in turn, helps expand capitalist production beyond the capacity of the market to absorb new commodities: "[B]anking and credit...become the most potent means of driving capitalist production beyond its own limits, and one of the most effective vehicles of crises and swindle."

But Marx also stressed that the credit crunch is actually a symptom of problems in the underlying productive economy. He wrote in Capital Volume 2, "[W]hat appears as a crisis on the money-market is in reality an expression of abnormal conditions in the very process of production and reproduction."

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THERE ARE longstanding debates among Marxist economic theorists about just how capitalist crises play out in general and their manifestation in different historical periods.

Marx identified a long-term tendency in the rate of profit to fall--the result of the constant pressure to invest in technology to replace workers, who are the source of surplus value. But capitalists have been able to counteract the falling rate of profit in various ways--for example, by destroying unprofitable capital through highly disruptive means, ranging from bankruptcies to wars like the Second World War, which ultimately was the most important reason the system finally overcame the Great Depression and was launched into a postwar boom.

In the 1970s, severe slumps returned to the world system as a revived Europe and Japan, along with several newly industrialized countries, emerged as more effective competitors to the U.S. But the restructuring of uncompetitive industries, free-market policies and corporate globalization opened the way to a new boom in the 1990s, when the U.S. declared that its "miracle economy" was the model for the world.

Ultimately, however, the economic expansion of the 1990s set the stage for a new crisis--one that Marx would have recognized. In the Communist Manifesto, written in 1847, years before he undertook a systematic study of the system, Marx and co-author Frederick Engels noted that capitalism's drive to expand led to crises of overproduction--of too many goods to be sold at a profit:

In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity--the epidemic of overproduction. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce...

And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.

That passage still has the ring of truth. It was capitalist overproduction on a world scale in the 1990s that set the stage for the 1997 East Asian financial crisis and the recession of 2001. But by dropping interest rates to rock bottom, the Federal Reserve was able to postpone the real day of reckoning for the U.S. for nearly a decade. Cheap credit and the housing bubble kept American consumers spending and the number of Asian factories growing, even if the number of manufacturing jobs in the U.S. continued to decline during the 2002-2007 expansion.

As we now know, banks were happy to make the loans for mortgages and then pass them along to Wall Street, which bundled them into securities that later turned toxic. When even a limited number of sub-prime loans started to go bad, a credit squeeze quickly destroyed investment banks Bear Stearns and Lehman Brothers. Nouriel Roubini, who had been warning about all this for years, was suddenly a business celebrity--and even Karl Marx made the financial press.

The bad debts of that era of casino capitalism continue to weigh down the world economy. Yesterday's toxic assets held by private banks have morphed into today's government budget deficits, thanks to the no-questions-asked, multitrillion-dollar bailouts in the U.S. and Europe.

And the global crisis of overproduction is still unresolved. In the U.S., the capacity utilization rate for total industry was 77.5 percent in July, some 2.2 percentage points above the rate a year earlier, but 2.9 percentage points below the average for the period between 1972 and 2010. That's unmistakable evidence of a depressed economy--and it's what Roubini was talking about when he cited "excess capacity" and mentioned Marx.

With mainstream economists fresh out of ideas about how to overcome the crisis, perhaps it shouldn't be surprising that Marx made news even in Rupert Murdoch's Wall Street Journal. But don't hold your breath waiting for a follow-up Journal headline: "Capitalism Isn't Working: Socialism is the Alternative." That part is up to us.

If Nelson Mandela really had won, he wouldn't be seen as a universal hero

Mandela must have died a bitter man. To honour his legacy, we should focus on the unfulfilled promises his leadership gave rise to

• 
• • Slavoj Žižek
  • theguardian.com, Monday 9 December 2013 10.05 GMT

‘It is all too simple to criticise Mandela for abandoning the socialist perspective after the end of apartheid: did he really have a choice? Was the move towards socialism a real option?’ Photograph: Media24/Gallo Images/Getty Images

In the last two decades of his life, Nelson Mandela was celebrated as a model of how to liberate a country from the colonial yoke without succumbing to the temptation of dictatorial power and anti-capitalist posturing. In short, Mandela was not Robert Mugabe, and South Africa remained a multiparty democracy with a free press and a vibrant economy well-integrated into the global market and immune to hasty socialist experiments. Now, with his death, his stature as a saintly wise man seems confirmed for eternity: there are Hollywood movies about him – he was impersonated by Morgan Freeman, who also, by the way, played the role of God in another film; rock stars and religious leaders, sportsmen and politicians from Bill Clinton to Fidel Castro are all united in his beatification.

Is this, however, the whole story? Two key facts remain obliterated by this celebratory vision. In South Africa, the miserable life of the poor majority broadly remains the same as under apartheid, and the rise of political and civil rights is counterbalanced by the growing insecurity, violence and crime. The main change is that the old white ruling class is joined by the new black elite. Second, people remember the old African National Congress that promised not only the end of apartheid, but also more social justice, even a kind of socialism. This much more radical ANC past is gradually obliterated from our memory. No wonder that anger is growing among poor, black South Africans.

South Africa in this respect is just one version of the recurrent story of the contemporary left. A leader or party is elected with universal enthusiasm, promising a "new world" – but, then, sooner or later, they stumble upon the key dilemma: does one dare to touch the capitalist mechanisms, or does one decide to "play the game"? If one disturbs these mechanisms, one is very swiftly "punished" by market perturbations, economic chaos and the rest. This is why it is all too simple to criticise Mandela for abandoning the socialist perspective after the end of apartheid: did he really have a choice? Was the move towards socialism a real option?

It is easy to ridicule Ayn Rand, but there is a grain of truth in the famous "hymn to money" from her novel Atlas Shrugged: "Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to become the means by which men deal with one another, then men become the tools of other men. Blood, whips and guns or dollars. Take your choice – there is no other." Did Marx not say something similar in his well-known formula of how, in the universe of commodities, "relations between people assume the guise of relations among things"?

In the market economy, relations between people can appear as relations of mutually recognised freedom and equality: domination is no longer directly enacted and visible as such. What is problematic is Rand's underlying premise: that the only choice is between direct and indirect relations of domination and exploitation, with any alternative dismissed as utopian. However, one should nonetheless bear in mind the moment of truth in Rand's otherwise ridiculously ideological claim: the great lesson of state socialism was effectively that a direct abolition of private property and market-regulated exchange, lacking concrete forms of social regulation of the process of production, necessarily resuscitates direct relations of servitude and domination. If we merely abolish the market (inclusive of market exploitation) without replacing it with a proper form of the communist organisation of production and exchange, domination returns with a vengeance, and with it direct exploitation.

The general rule is that when a revolt begins against an oppressive half-democratic regime, as was the case in the Middle East in 2011, it is easy to mobilise large crowds with slogans that one cannot but characterise as crowd pleasers – for democracy, against corruption, for instance. But then we gradually approach more difficult choices, when our revolt succeeds in its direct goal, we come to realise that what really bothered us (our un-freedom, humiliation, social corruption, lack of prospect of a decent life) goes on in a new guise. The ruling ideology mobilises here its entire arsenal to prevent us from reaching this radical conclusion. They start to tell us that democratic freedom brings its own responsibility, that it comes at a price, that we are not yet mature if we expect too much from democracy. In this way, they blame us for our failure: in a free society, so we are told, we are all capitalist investing in our lives, deciding to put more into our education than into having fun if we want to succeed.

At a more directly political level, United States foreign policy elaborated a detailed strategy of how to exert damage control by way of rechanneling a popular uprising into acceptable parliamentary-capitalist constraints – as was done successfully in South Africa after the fall of apartheid regime, in Philippines after the fall of Marcos, in Indonesia after the fall of Suharto and elsewhere. At this precise conjuncture, radical emancipatory politics faces its greatest challenge: how to push things further after the first enthusiastic stage is over, how to make the next step without succumbing to the catastrophe of the "totalitarian" temptation – in short, how to move further from Mandela without becoming Mugabe.

If we want to remain faithful to Mandela's legacy, we should thus forget about celebratory crocodile tears and focus on the unfulfilled promises his leadership gave rise to. We can safely surmise that, on account of his doubtless moral and political greatness, he was at the end of his life also a bitter old man, well aware how his very political triumph and his elevation into a universal hero was the mask of a bitter defeat. His universal glory is also a sign that he really didn't disturb the global order of power.

Orthodox economists have failed their own market test

Students are demanding alternatives to a free-market dogma with a disastrous record. That's something we all need

• 
• • Seumas Milne
  • The Guardian, Wednesday 20 November 2013 21.00 GMT

Ha-Joon Chang, one of the last surviving independent economists at Keynes's Cambridge: 'The supporters of neoclassical economics have an almost religious mentality.' Photograph: Sean Smith for the Guardian

From any rational point of view, orthodox economics is in serious trouble. Its champions not only failed to foresee the greatest crash for 80 years, but insisted such crises were a thing of the past. More than that, some of its leading lights played a key role in designing the disastrous financial derivatives that helped trigger the meltdown in the first place.

Plenty were paid propagandists for the banks and hedge funds that tipped us off their speculative cliff. Acclaimed figures in a discipline that claims to be scientific hailed a"great moderation" of market volatility in the runup to an explosion of unprecedented volatility. Others, such as the Nobel prizewinner Robert Lucas, insisted that economics had solved the "central problem of depression prevention".

Any other profession that had proved so spectacularly wrong and caused such devastation would surely be in disgrace. You might even imagine the free-market economists who dominate our universities and advise governments and banks would be rethinking their theories and considering alternatives.

After all, the large majority of economists who predicted the crisis rejected the dominant neoclassical thinking: from Dean Baker and Steve Keen to Ann Pettifor, Paul Krugman and David Harvey. Whether Keynesians, post-Keynesians or Marxists, none accepted the neoliberal ideology that had held sway for 30 years; and all understood that, contrary to orthodoxy, deregulated markets don't tend towards equilibrium but deepen the economy's tendency to systemic crisis.

Alan Greenspan, the former chairman of the US Federal Reserve and high priest of deregulation, at least had the honesty to admit his view of the world had been proved "not right". The same cannot be said for others. Eugene Fama, architect of the "efficient markets hypothesis" underpinning financial deregulation, concedes he doesn't know what "causes recessions" – but insists his theory has been vindicated anyway. Most mainstream economists have carried on as if nothing had happened.

Many of their students, though, have had enough. A revolt against the orthodoxy has been smouldering for years and now seems to have gone critical. Fed up with parallel universe theories that have little to say about the world they're interested in, students at Manchester University have set up a post-crash economics society with 800 members, demanding an end to monolithic neoclassical courses and the introduction of a pluralist curriculum.

They want other schools of economic thought taught in parallel, from Keynesian to more radical theories – with a better record on predicting and connecting with the real world economy – along with green and feminist economics. The campaign is spreading fast: to Cambridge, Essex, the London School of Economics and a dozen other campuses, and linking up with university groups in France, Germany, Slovenia and Chile.

As one of the Manchester society's founders, Zach Ward-Perkins, explains, he and a fellow student agreed after a year of orthodoxy: "There must be more to it than this." Neoclassical economics is after all built on a conception of the economy as the sum of the atomised actions of millions of utility-maximising individuals, where markets are stable, information is perfect, capital and labour are equals – and the trade cycle is bolted on as an afterthought.

But even if it struggles to say anything meaningful about crises, inequality or ownership, the mathematical modelling erected on its half-baked intellectual foundations give it a veneer of scientific rigour, valued by students aiming for well-paid City jobs. Neoclassical economics has also provided the underpinning for the diet of deregulated markets, privatisation, low taxes on the wealthy and free trade we were told for 30 years was now the only route to prosperity.

Its supporters have an "almost religious mentality", as Ha-Joon Chang – one of the last surviving independent economists at Keynes's Cambridge – puts it. Although claiming to favour competition, the neoclassicals won't tolerate any themselves. Forty years ago,most economics departments were Keynesian and neoclassical economics was derided. That all changed with the Thatcher and Reagan ascendancy.

In institutions supposed to foster debate, non-neoclassical economists have been systematically purged from economics faculties. Some have found refuge in business schools, development studies and geography departments. In the US, corporate funding has been key. In Britain, peer review through the "research excellence framework" – which allocates public research funding – has been the main mechanism for the ideological cleansing of economics.

Paradoxically, the sharp increase in student fees and the marketisation of higher education is creating a pressure point for students out to overturn this intellectual monoculture. The free marketeers are now being market-tested, and the customers don't want their product. Some mainstream academics realise that they may have to compromise, and have been colonising a Soros-funded project to overhaul the curriculum, hoping to limit the scale of change.

But change it must. The free-market orthodoxy of the past three decades not only helped create the crisis we're living through, but gave credibility to policies that have led to slower growth, deeper inequality, greater insecurity and environmental degradation all over the world. Its continued dominance after the crash, like the neoliberal model it underpins, is about power not credibility. If we are to escape this crisis, both will have to go.