Monday Apr 15

Revisiting FDR’s Democratic Capitalism

The unquestioned economic truth for conservatives, libertarians and even most liberals is that unfettered markets promote the optimal amount of economic well-being. Yet, over the past forty years the propagation of free trade, liberalized markets, and unrestricted political barriers, has resulted in: (1) a massive distribution of enormous wealth for the fractional elite, and (2) a vast majority remaining financially stagnant and, in many occurrences, stripped of personal wealth, resources and assets. Economic growth and well-being are measured in terms of the Gross Domestic Product (GDP), that is, all the total wealth created nationally. The Wall Street elites who claim the lion’s share of this wealth, argue that the wealth they create, in turn creates jobs for others to the benefit of masses. Yet there is little evidence that this correlation exists.

Nearly two decades into the new millennium, capitalism has proven to be problematic in terms of the equitable distribution of resources and wealth. To this, a renewed interest in Marxist theory is being considered, as argued by Angela Davis of UC Santa Cruz and William Robinson of UC Santa Barbara. In the current situation a reconstituted form of Marxism, i.e., neo-Marxism, may prove to be helpful. The neo-Marxist perspective tends to encompass most of the trends of Marxist philosophy arising from the New Left in the 1960s. In broad terms, neo-Marxists seek to answer the questions traditional or orthodox Marxism could not, especially in light of technological advances and political developments that were unforeseen by past generations. Marxism traditionally identified the inherent contradictions and self-destructive forces within capitalism itself. The neo-Marxist approach, as in C. Wright Mills’ Power Elite, tends to view how and why power arrangements and hegemonic structures benefit elites in a given society.

Critical Theory

A dominant school of neo-Marxist thought is the Frankfurt School. Formally known as the Institute for Social Research (ISR), the Frankfurt School in 1923 Germany. Its purpose was to confront both fascism and communism as they emerged in twentieth century Europe.
In undertaking this task, critical theory developed an interdisciplinary methodology using Marxist theory and diverse schools of thought, such as, anti-positivist sociology, Weberian sociology, Freudian and Jungian psychoanalysis, and existentialism. But most importantly, the original founders of the Frankfurt School sought to deploy a new Marxist socio-economic model to better analyze the relationship between the spread of fascism and its association to Western capitalism. To be clear, it was the destabilizing forces of capitalist formation that critical theorists identified as the cause of militant fascism. Nevertheless, the critical theorists and their neo-Marxist social analysis proved threatening for the Third Reich. The Frankfurt School was defiantly critical of Hitler’s destruction of German democracy and its transformation into a fascist state.

Goebbels referred to critical theorists as “cultural Bolsheviks” now “cultural Marxists”. Most threatening was the Frankfurt Schools’ insistence that capitalism, in order to function, needed to promote a culture of automatons as citizens. To prevent social disintegration and economic collapse a compliant population was needed. Communists, Jews, trade unionists, “dissidents” and “undesirables” were deemed a threat to social cohesion. Democratic political organizations, for the Third Reich, were tantamount to anarchy. Thus, critical theorists, Eric Fromm, Teodoro Adorno, Jurgen Habermas and others, were vilified through Nazi propaganda and eventually fled Germany and relocated to Columbia University as the New School for Social Research. In all, the democratic principles of the Weimar Republic were to be expendable. And so, the eventual elimination of democratic freedoms and liberties inevitably resulted in police state tactics, militarism, racism, xenophobia, etc. Critical theorists argue that the creation of an “existential fear” by fascists is the key to undermining democratic societies and implementing fascist style laws and policies. The point however, is to maintain capitalist domination for elites. For theoretical purposes, the Frankfurt School leaned heavily on Marx’s Economic and Philosophical Manuscripts and The German Ideology.

World Systems

Another school of neo-Marxist thought is based on what is known as World Systems. The substantive research in this field addresses imperialism, neo-imperialism, post-imperialism, colonialism, neocolonialism and postcolonialism. It analyzes the relationship between countries defined as the “core” (US, Western Europe), the “semi-periphery” and “periphery” nations (Asia, Africa, Latin America). This field of neo-Marxism examines the economic advantage of countries such as the United States and Western Europe and their trade dominance over nations in Africa, Asia and Latin America. Its method of investigation begins with the colonization of developing countries and the dominance of the developed countries and economic gain of the core over the semi-periphery and periphery. The World Systems school derives its critiques of monopoly capitalism based on the works of Paul Baran, Paul Sweezy and Harry Magdoff.

World System scholars such as Andre Gunder Frank, Samir Amin, and Immanuel Wallerstein argue that core countries must necessarily keep the semi-periphery and periphery countries in a state of dependence which economically benefits the wealthy nations. They challenge the myth of development in peripheral countries as the optimal method of economic growth. With development came deregulation and divestment strategies of poverty-stricken countries. World Systems points out that this has only resulted in increased poverty of periphery nations.

Andre Gunder Frank posited a variety of explanations as to why many developing countries did not seem to develop or change much. This was based on the his observations that when developing countries connect to the West they become underdeveloped. Social theorist and economist Immanuel Wallerstein, whose works have made a lasting impact on the study of the historical development of the world capitalist system, argued that development does occur but only for a small number of semi-peripheral states and not for those peripheral states that remain the providers of natural resources and raw materials to the developed industrial core nations.

Economists such as E. F. Schumacher and Manfred Max-Neef argue for a macro approach to economic and social justice change. Nation-states they argue should not be the basic unit of socio-economic analysis. To the contrary, they argue that international economic systems themselves are the key. In other words, small sustainable economic development at local levels, prioritizing basic human needs, is the optimal approach in the promotion of a just economy. This stands in contrast to the priority of expensive exports as economic priority.

After World War II, international political economy became focused on issues raised by economic globalization This is inclusive of state viability in an increasingly globalized international economy. The role of multinational corporations in the “new global economy,” seeks to base the globalized economy on deprivation and dependency in order for markets in wealthier countries to thrive. But this arrangement has many negative outcomes since increased deprivation has the potential to translate into social unrest. In the 1950s and ’60s, American economist W. W. Rostow argued that Western economic development made popular the argument that after a period of tension, disorder, and even chaos and social unrest, within a developing country - that country would eventually “take off” and stabilize. But to maintain this order the presence of a police state is mandatory in the form of a repressive government.

Development and Dependency

Development Policy and Dependency Theory are other schools of thought in neo-Marxism. These perspectives often applied to problems at several different levels of analysis that point to complex root causes of conflict traced to human nature and national interests. The structure of the international system lacks a single sovereign to prevent conflict, whether economic or political. For example, analysis of U.S. policy regarding migrants, in particular from Mexico and Latin America, must take into consideration patterns of trade and investment between these regions and the domestic interests on both sides of the border. Similarly, domestic and international interests are linked by trade, finance, and other factors in the case of financial crises in developing countries such as Thailand and Argentina.

Development and dependency first appeared as a subfield in international relations. This transpired during the Cold War rivalry between the Soviet Union and the United States (1945–91). Analyses initially focused largely on international security but later came to include economic security and the role of market actors including multinational corporations, international banks, cartels (e.g., OPEC), and international organizations (e.g., the IMF) - in national and international security strategies. Development and dependency analysis grew in importance as a result of various dramatic international economic events, such as the collapse of the Bretton Woods international monetary system in 1971 and the oil crisis of 1973-74.

With this collapse other options to capitalism were never addressed or purposely avoided. A competing model to international capitalism would best eschew the inert “comparative advantage” model and adopt a “competitive advantage” model by insisting that semi-periphery and periphery countries be given economic handicaps to incentivize local and even indigenous economic development. Radical economist Ernest Feder argues for a rural economics based on peasant agriculture, land reform and anti-dependency as an alternative to loan schemes from the World Bank and International Monetary Fund (IMF).  

During the early period of the Cold War, political scientists emphasized the realist, or power politics, dimension of U.S. - Soviet relations, while economists tended to focus on the Bretton Woods system of the international economy - that is, the institutions and rules that beginning in 1945 governed much of the international economy. During the Vietnam War, however, a growing decrease in the value of the U.S. dollar and large deficits for the United States in its balance of trade and payments weakened the ability of the United States to conduct and pay for the war, which thereby undermined its relationship to its North Atlantic Treaty Organization allies.

During the OPEC oil crisis, the realist-oriented U.S. Secretary of State Henry A. Kissinger found himself unable to, or refused to, understand the issues without the assistance of an economist. These events led to a search for a multidisciplinary approach or outlook that borrowed different theories, concepts, and ideas from political science and international relations - as well as from economics and sociology - to explain a variety of complicated international problems and issues. It did not so much result in the development of a new school of political economy but explicitly sought to trace the connections between political and economic factors at a superficial level.

Such themes were evident in the 1990s and the early twenty-first century when a number of politically and economically powerful (and mostly Western) multinational corporations were accused of exploiting women and children in unsanitary and unsafe working conditions in their factories in developing countries. These cases and others like them were seen by some structuralists as evidence of a “race to the bottom” in order to attract investment by international businesses, many developing countries relaxed or eliminated worker-protection laws and environmental standards. The Structural Adjustment Programs (SAP), insisted upon by the World Bank and IMF, and the insistence that periphery countries deregulate and divest themselves of infrastructure needs, proved disastrous. Yet the same neoliberal model is elevated as economic doctrine for remediating poverty and the creation of wealth and “prosperity”.

The Great Depression, along with World War II, economically isolated many countries around the world. Traditional paths of trade and investment were interrupted - though after the war they were partly smoothed by international monetary institutions like the World Bank, the IMF, and the General Agreement on Tariffs and Trade (GATT), all of which were founded specifically in order to propel and expand the international capitalist system. Periphery nations benefitted only at the wealthiest levels, while the poor became increasingly marginalized. These institutions were engineered to catalyze a capitalist resurgence and ensure its expediency chiefly because there was to be no ceiling to financial growth.

The North American Free Trade Agreement (NAFTA) and its reauthorization confirm this and tragically to the demise of US labor. The Trans-Pacific Partnership (TPP), if resurrected will surpass NAFTA as economic disaster and in the process cripple local and world economies. Specifically, for the US, domestic labor will be crushed in that new markets in core countries, with far cheaper labor, will see job loss and economic hardship. Ronald Chilcote and Fernando Correa Prado argue that to maintain a capitalist system of development with its emphasis on economic dependency, must be guarded from structural analysis with respect to economic distributions of wealth and resources. Dependency and a police state are complementary in the international order.

Democratic Capitalism

A possible alternative to the grim analysis of capitalism’s relationship to fascism, is a revival of FDR’s democratic Economic Bill of Rights. In 1932 Franklin Delano Roosevelt (FDR) was elected president of the United States with the daunting task of ending the Great Depression. Much of his landmark New Deal legislation was implemented as a “safety net,” not simply as support for impoverished Americans, but primarily to rescue capitalism from devastation. While the New Deal was successful in preventing the disintegration of society, it did not end the Great Depression until the final days of World War II. At that time FDR capitulated to unions and labor leaders by agreeing to fundamental economic rights of citizens. On January 11th, 1944, State of the Union address to Congress, FDR referred to a Second Bill of Rights and prefaced this reference with the following warning, “We have come to the clear realization of the fact that true individual freedom cannot exist without economic security and independence. Necessitous men are not free men.”[1]

The principle elements of the Second Bill of Rights, can be divided into two fundamental elements: opportunity and security. FDR argued that individual freedom is inadequate without economic security and that economic deprivation itself threatened social cohesion. With respect to economic opportunity, FDR argued for the economic rights to: a useful and remunerative job; a good education; every businessman to conduct their business free from unfair competition and domination by monopolies. Regarding economic security, FDR argued for rights to: protection from the economic fears associated with old age, sickness, accident, and unemployment; adequate medical care and the opportunity to achieve and enjoy good health; decent housing for families; a living wage in order to provide adequate food, clothing, and recreation.

The Second Bill of Rights, as described by Cass Sunstein, has been partially implemented in the United States while other industrialized countries have already implemented such rights. 

Though economic rights were not specifically included in the original Constitution and subsequent amendments, scholars such as Sunstein demonstrate that the Founding Fathers (Madison and Jefferson) nevertheless considered the strategic significance of these rights as essential to democracy itself as Madison states:

"By withholding unnecessary opportunities from a few, to increase the inequality of property, by an immoderate, and especially an unmerited accumulation of riches; by the silent operation of laws, which, without violating the laws of property, reduce extreme wealth to a state of mediocrity, and raise indigence toward a state of comfort."[2]

And Jefferson states:

"The consequences of this enormous inequality producing so much misery to the bulk of mankind, legislatures cannot invest too many devices for subdividing property … Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise. Whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labor and live on."[3] 

The idea of economic rights did not attract much attention in the United States until FDR was elected president. The current experience of the Great Depression made the need for economic rights quite clear in the minds of a large proportion of the citizenry. Sunstein indicates that new “rights” need not take the form of amendments to the Constitution. They can be recognized through reinterpretation of the Constitution by courts or when a general consensus develops among large majorities of citizens as to what constitutes a “right.” This is only a half measure, however.

For example, some of the most concrete results of FDR’s efforts were the Social Security Act of 1935, the creation of several agencies that produced greatly needed jobs, labor protection laws that created the right for workers to organize into unions and a federal minimum wage, antitrust policies, the GI Bill of Rights, record tax rates on wealthy corporations and individuals. But perhaps more importantly by the end of FDR’s presidency, large segments of the American population accepted his Second Bill of Rights as legitimate rights. Yet today, many of these programs have been terminated and Social Security is under attack, continually.

In this context FDR’s Second Bill of Rights, as economic rights guaranteed to all citizens, must be memorialized as an amendment to the Constitution in securing democratic economic rights. Wright’s anti-capitalist agenda, both taming and eroding capitalism, provides an emancipatory path forward. Coupled with a Green New Deal, a Second Bill of Rights must be an immediate political agenda in the promotion of peace and justice … and the remedy, arguably, to check the trends in fascist America in the midst of capitalism’s demise.

The Post World War II “Golden Age” of capitalism was, arguably, an historical anomaly, or a brief period in which favorable structural conditions and robust popular power opened up the possibility for relative egalitarian model. Before that time capitalism was a rapacious system, and under neoliberalism it has become rapacious once again, returning to the normal state of affairs for capitalist systems. As this problem appears to become more acute, political movements attempting to reform, if not overthrow capitalism completely, are under consideration. And the drive to end monopoly capitalism, and its disastrous effects on the planet and its inhabitants, and in the midst of a sixth massive extinction demand an anti-capitalist movement, redefined as democratic capitalist economic rights.

[1] This quote can be easily accessed via internet search at cites such as New Deal Progressives,

[2] James Madison, 14, The Papers of James Madison, Charlottesville, VA: University of Virginia Press, 1975, 197-198.

[3] Thomas Jefferson, 8, The Papers of Thomas Jefferson, Princeton: Princeton University Press, 1953, 681-683.

Ed Martin is a professor at California State University, Long Beach and The Graduate Center for Public Policy and Administration, Long Beach, California