Intervention USA (1989)

From the April 1989 issue of the Socialist Standard

In these days of the enterprise culture, government involvement in industry, commerce, banking and other economic activities is not the flavour of the month. Market forces are in and intervention, or so we are told, is out.

Indeed it would appear that this is true, for all over the world, in Britain, France, Australia and elsewhere, governments have been getting rid of much of what is called “the public sector”. In fact, nationalisation, the main form of government involvement in a nation’s economic activity and once seen as a device which would solve all of capitalism’s economic and social problems, is more or less a dead duck.

So obvious is this even to politicians of “the left” that the Labour Party here doesn’t intend to re-nationalise all the Tory sell-offs of the last decade, while in the so-called communist countries private enterprise is being encouraged to compete with ailing state enterprise.

From deregulation…

However, even in such times as these, governments still have to step in and intervene when they think that the interest of the national capitalist class is in danger. For example, in the United States, the very heartland of non-intervention, there has been the growing problem of the Savings and Loans banks. These S and Ls are the rough equivalent of Britain’s building societies and hundreds of them have gone bust while hundreds more are insolvent. Their losses were $6.8 billion in 1987 and $3.8 billion in the first quarter of 1988, although depositors are covered by a government insurance agency.

How did this happen? Just as nationalisation was once seen as the great cure-all, nowadays it is “deregulation” which fills the bill. This means that enterprises in an industry no longer have to conform to laid-down government regulations but are freer to operate as they see fit. This, it is claimed, will produce a capitalism without its attendant problems, will provide greater all-round prosperity, and so on.

Thus the S and Ls were allowed by the Carter administration in 1980 to borrow, not only from small investors for re-lending as mortgages as previously but from the money markets at ever higher rates of interest. This laid them wide open to trouble, which duly arrived when the Reagan administration further deregulated by allowing the now exposed S and Ls to move into high-risk lending for big property deals and other get-rich-quick schemes of which they had no experience. The result was the spate of bankruptcies and insolvencies already mentioned.

… to regulation

At present, the insolvent S and Ls keep afloat by continuing to borrow at high interest rates and their debts are estimated to be increasing by $35 million a day. Sooner or later the government will have to foot the ever-mounting bill. The implications of this are serious for American capitalism. How can it ever tackle its massive budget deficit of $150 billion while it throws away billions at this rate? More seriously, many American banks have collapsed in recent years (almost 200 in 1987 alone) and the additional collapse of hundreds more S and Ls could trigger a disastrous loss of public confidence in the entire American banking system. The Administration has therefore intervened to try to stop the rot.

Bush and his financial advisers have come up with a plan calling for a one hundred billion dollar issue of new bonds to bail out the S and Ls. The interest on the bonds is to be paid to the government by the S and Ls and the other banks through higher premiums for Federal insurance of all bank deposits. Critics of the plan say it breaks Bush’s election promise of “no new taxes” as “the taxpayer”, in the form of the banks’ customers, will have the extra premium passed onto them through higher bank charges. But this will not necessarily happen because the customers may refuse to pay up, in which case the banks and S and Ls will have to bear the extra cost themselves.

This rescue package also calls for a leaner and fitter S and L industry to be taken over and run by another government agency, the Federal Deposit Insurance Corporation, and amounts to back-door nationalisation. So whatever their ideological preferences any government will make use of intervention, even despised nationalisation, when it suits “the national interest”.

All of this reinforces the Socialist Party’s view that whether government use less intervention or more, they are helpless in avoiding capitalism’s pitfalls.

Vic Vanni