Nationalization of the banks:
how much of a change would it be?

by Joseph Green

(CV #43, June 2009)


What is nationalization?
A glimpse at the history of nationalization
The bourgeois parody of nationalization
Would real nationalization be better?
Nationalization of the banks isn't necessarily
a break with neo-liberalism
A different type of nationalization
"We're all socialists now"
The fallacy of the Trotskyist transitional program
Present-day demands

. Nationalization has long been a boogeyman in US politics. As politicians, Democrat as well as Republican, competed over who can deregulate more, it was poison to be regarded as a advocate of "big government" and too friendly with the public sector.

. Yet now, with the banks and many corporations in free fall, there has been a change. Many politicians, government officials, and even financiers are talking about nationalization of the banks. Many staunch advocates of free-market economics are advocating temporary nationalization. This ranges from strong backing by the liberal Prof. Paul Krugman, to grudging acceptance by the self-proclaimed "lifelong libertarian Republican" Alan Greenspan, long a fierce protector of free-market orthodoxy in his role as Chairman of the Federal Reserve from 1987 to 2006.

. Nationalization has become an immediate issue. The conservative Republicans rage against it as socialism; the Obama administration is trying to avoid it; the reformist left dreams of it as socialism; but many liberals and establishment economists back it as a measure to reinvigorate capitalism.

. So how much of a change would nationalization be? It depends on what passes for nationalization. It could be another way of subsidizing failed bankers and industrialists, or it could be a way to avoid paying exorbitant bailouts. It is up to the working class not to be seduced by the term "nationalization", but to look closely at the provisions. We must fight against compensation for the failed capitalists, and we must demand that nationalized banks and enterprises be directed to achieve social aims, that they let the failed financial investments collapse, and that the rights of workers be respected.

What is nationalization?

. Nationalization refers to the national government (in the US, the federal government) taking over the ownership and control of an enterprise or, perhaps, a whole industry. Sometimes this has been done without compensation, and sometimes with. Federal subsidies or grants to an industry are not nationalization; nor is the mere purchase of some of an enterprise's stocks and bonds. Nationalization refers to a complete takeover.

. Different levels of government may own an enterprise: states and local governments may own certain enterprises; nationalization, strictly speaking, refers to federal ownership. The post office, for example, is a federally-owned enterprise, although it is run as an independent agency. And a number of American cities and localities have owned and operated their own power utilities.

A glimpse at the history of nationalization

. Historically, different governments have had very different reasons for establishing government-owned enterprises. Nationalization has been carried out by governments of the most varied political tendencies: it has been done by conservative and even reactionary governments, and it has been done by revolutionary governments. In the 19th century, Bismarck, the "iron chancellor" of Germany, nationalized the railroads to increase Germany's military strength. In the 20th century, a large public sector was set up in Western Europe after World War II in order to revitalize capitalism, while the Bolsheviks had used nationalization several decades earlier to undermine capitalism. Since nationalization gives control to the government, one has to ask, which class really owns and runs the government of the country.

. Nationalization has been carried out by diehard capitalist governments for a number of reasons, such as the following:

. Nationalization has also been carried out by revolutionary governments for many purposes, depending on what type of revolution has taken place:

The bourgeois parody of nationalization

. While nationalization can be used by conservative as well as left-wing governments, the American bourgeoisie is quite hesitant about it. It has a tradition of the most outrageous looting of the government, and most of the time it prefers, whenever possible, to give fabulous subsidies to private companies than to build up an efficient national service. Thus the transcontinental railroads were established in the 19th century by giving the most extravagant land grants and subsidies to private companies.

. In the 20th century, the American bourgeoisie developed various forms of half-way government ownership, such as "government-sponsored enterprises", "quasi-public corporations", and public-private partnerships. The government may provide money and protection, while the private owners are in control.

. Recently this has reached the level of neo-liberal parody. When the government buys some stock in failing banks, this is described as nationalization, although the private management is left in control. And the huge Wall Street bailout under Bush, and the even larger follow-up bailouts under Obama, have even been described by some voices in the bourgeois media as "socialism". The attempt to bribe the bankers to do the right thing with respect to commercial loans is equated with the building of a public sector, even though under actual nationalization the government could simply direct the banks to make loans. Indeed, we are faced with the spectacle of the government, having provided almost thirteen trillion dollars in subsidies and guarantees to the banks, having to beg the financiers to do something other than hoard the cash and pay off their obligations to other financiers.

. But the bourgeoisie has good reason to present the Wall Street bailouts as socialism. By doing so, it kills two birds with one stone: it tries to deflect the mass anger by presenting these subsidies to the rich as something other than the looting of the country; and it aims to discredit government programs in general in the eyes of the masses.

Would real nationalization be better?

. But would actual bank nationalization be better than the huge bailouts?

. A full nationalization would give the government direct control. In the case of the banks, for example, it would allow the government to directly assure credit supplies and lending rather than trying to bribe the financiers to do so.

. Such a nationalization would be better than paying out trillions of dollars. It wouldn't solve the economic crisis because the ongoing depression is not based solely on lack of credit, but is also an overproduction crisis, and a general collapse of neo-liberalism. But it could be a cheaper way to maintain credit -- provided the nationalized banks didn't have the obligation of making good on all the liabilities and bad investments incurred under the previous, private management.

. Indeed, even a real nationalization might be accompanied with gigantic payouts to the old stockholders and the attempt to prop up toxic assets taken over from the private banks. Therefore, as far as the interests of the working class, it is essential that the nationalization be without compensation.

. But if the "toxic assets" and worthless investments were allowed to collapse, this might bring down many pension, health and insurance funds, and destroy much of the present financial system. Thus the country is faced with a choice: either replace the neo-liberal Ponzi scheme, where supposedly every need is guaranteed by a rising stock market, with a proper system of social services, or sacrifice everything to restore the Ponzi scheme. The nationalization of the banks could be used to help replace the system of rampant neo-liberal speculation called finance, and this would mean that instead of trillions of dollars going to bank bailouts and financiers, money could go to the social programs which need it. But this is not what the bourgeoisie is considering. It wants to use the nationalization of the banks to preserve the present, failing financial system, not to replace it. And then nationalization will simply be another way of continuing the huge, scandalous payouts to the financiers, even if a few individual financiers are dismissed from their posts.

Nationalization of the banks isn't necessarily a break with neo-liberalism

. And we have good reason to be concerned. The bourgeoisie still embraces market fundamentalism: even the section that backs government action to deal with the current crisis, merely thinks that restoring some financial regulations and pouring in a lot of money will fix the old system. Thus the nationalization that Krugman, Greenspan, and the politicians are talking about today isn't the establishment of a permanent government-owned banking system. Instead, they insist that the nationalization would only be temporary, and the banks be sold back to private financiers as soon as possible. Even during the period of government ownership, they would merely have the government reorganize assets, while having the nationalized banks run as much like private institutions as possible. Indeed, they even talk about a nationalized "bad bank" to take over and make good on the bad securities. This would mean that the government is left with the liabilities of the previous private management. Indeed, the purpose of this nationalization is for the government to "recapitalize" the banks, i.e. , remove their worthless assets and pour in money to fill the gap.

. True, two prominent bourgeois economists, Paul Krugman and Joseph Stiglitz, have come out strongly against the idea of a "bad bank", Stiglitz being a dissident former chief economist for the neo-liberal World Bank. But if you read what they say closely, they are only opposed to Obama's bank bailout, which seeks to use subsidies and a "bad bank" as an alternative to nationalization. They would find the same big, bad "bad bank" reasonable -- as part of their own plan.

. For example, Stiglitz writes sarcastically, but accurately, that Obama's "bad bank" scheme is "cash for trash":

. "I believe that the bad bank, without nationalization, is a bad idea. We should reject any plan that involves 'cash for trash.' It is another example of the voodoo economics that has marked the financial sector--the kind of alchemy that allowed the banks to slice and dice F-rated subprime mortgages into supposedly A-rated securities. Somehow, it is believed that moving the bad assets around into an aggregator bank will create value."(1)

. But Stiglitz sees no problem with "cash for trash" in a nationalized banking system, and he goes on to say that, under nationalization, "pricing is just an accounting entry between two pockets of the government. Whether the government finds it useful to gather all the bad assets into a bad bank is a matter of management: Norway chose not to; Sweden chose to."

. No, dealing with the bad assets isn't simply an accounting entry: both Sweden and Norway ended up pouring money into the banks. In essence, recapitalizing the banks with new reserves is either "cash for trash" or just directly giving the money away.

. Nationalization is no doubt a firmer policy than Obama's policy of showering the financiers with cash and then begging them to be nice. But the nationalization advocated by the liberal economists wouldn't be a break with market fundamentalism, not any more than the bailout and reorganization of the savings and loans in the 1980s was. Indeed, with the S&Ls and with the occasional bank that fails now and then, the FDIC takes them over and reorganizes their assets. In a sense, it temporarily nationalizes then, but it then puts them back on their feet as private institutions. This type of nationalization is so tame that it continued right through the heyday of militant neo-liberalism, and no one blinked an eye.

. This also can be seen in the article "The Quiet Coup" in the May 2009 issue of Atlantic magazine. It criticizes the Obama administration for not realizing the scope of the problem with the banks, and seeking to avoid temporary control over the banks. But its main author is Simon Johnson, the former chief economist for 2007-8 of the IMF, that bastion of neo-liberal globalization. Even intelligent neo-liberals recognized the need for government action in a crisis, and Johnson wrote:

". . . the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization. Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards -- contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible."(2)

. Johnson pretends that the influence of Wall Street and the policies of deregulation has nothing to do with globalization and neo-liberalism. Oh no, it's a "quiet coup", and supposedly runs against IMF orthodoxy. Seeking to convince the American bourgeoisie that look, everyone knows that the government has to act in a crisis, he writes:

. "Nationalization would not imply permanent state ownership. The IMF's advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC 'intervention' is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse."

. But, as is well-known, IMF advice has devastated one country after another. This type of nationalization of the banks is just another way of carrying out the IMF program, and its unlikely to be any better in the US than it has been in other countries. And despite Johnson's complaints about how much Obama has prostrated himself before the bankers, rather than reorganizing the banks, such a nationalization would still require huge sums of money. The problem, of course, is not with nationalization per se; it's that nationalization is a way of carrying out a certain policy, and if that policy is a bankrupt neo-liberal one, then nationalization is a tool for that purpose.

. Sweden is one of the models put forward by many of the present bourgeois advocates of nationalization, such as Krugman and Stiglitz. What happened was that, in order to dig the bankers out of the hole they had dug for themselves, the Swedish government bailed them out in the early 1990s. It actually took over full ownership of two banks, and it set up "asset management companies" to deal with dubious assets. But once the system was stabilized, the government reprivatized the banking system.

. These bank nationalizations were carried out by the right-wing, conservative government of Carl Bildt's "Moderate Party", which pushed a program of dismantling the old mixed capitalism in Sweden and moving in the direction of American capitalism. This involved extensive privatization and cuts in social programs. Swedish nationalization thus coincided with a drive to implement neo-liberalism, and it was a way to pump huge amounts of money into the financial sector. And while Sweden did emerge from the severe crisis of the early 1990s, there wasn't a world crisis at that time.

. For that matter, the Swedish financial policy of the 1990s, rather than immunizing Sweden against further shocks, left it vulnerable to the current crisis. Thus it is reported that

. "The Swedish economy will deteriorate sharply this year. GDP will drop by 3. 9 percent and 250,000 jobs will disappear by the end of 2010, according to a new report by the National Institute of Economic Research (KI), published on Tuesday. . . . KI argued in its report on the Swedish economy that the situation is as bad as the banking crisis in the beginning of the 1990s."(3) And another report points out that "Finance Minister Anders Borg has predicted that the country's unemployment rate will hit 12 percent in 2011."(4)

A different type of nationalization

. So the question of whether nationalization, even real nationalization, is good or bad is like the question of whether government spending is good or bad. This depends on what the spending is used for, and how it is carried out. The role of nationalization depends on whether a public sector is really being built up and whether nationalization is used as a pretext to pay more money to Wall Street or an alternative to paying this money. It depends on how the nationalized enterprises are run and regulated, whether the nationalized banks will operate differently from the old private banks or try to imitate them, and on whether there is public influence over this system. It depends on whether nationalization is used to break the influence of the financiers, or to prop them up.

. A proper bank nationalization would be an alternative to spending trillions in bailouts. Similarly, government ownership of local energy utilities has also proved useful in providing cheap power. During the California energy crisis, those cities with municipal utilities, such as Los Angeles, fared better than those completely at the mercy of the privatized energy markets.

. Thus any particular proposal for nationalization must be regarded on its own merits. Those proposals that, say, guarantee services for the masses and restrict profit-taking in various sections of the economy are useful. Those that simply are a pretext to prop up this or that sector of the bourgeoisie, albeit in a somewhat indirect fashion, are not. Indeed, the bourgeoisie might even try to use temporary nationalization for the sake of breaking workers' struggles: thus President Truman sought to nationalize the steel industry in 1952 in an unsuccessful attempt at keeping the workers from going out on strike.

. The working class must not be carried away simply by the terms "nationalization" or "government-ownership". Instead we must ask: what are the terms of this ownership? How will the nationalized banks or enterprises be run, who will benefit from them and who will pay for them? And it must remember that, just as the existence of social services doesn't turn a capitalist country into a socialist one, neither does the existence of a nationalized bank.

"We're all socialists now"

. The bourgeoisie, however, promotes that government action, in and of itself, is socialism. The Feb. 16 issue of Newsweek proclaims, "We're All Socialists Now". We are led to believe that we have now entered the "new era of big government" and "more government spending and taxing", and government action, any government action, was socialism, was French, was European. They wrote that "In many ways our economy already resembles an European one. As boomers age and spending grows, we will become even more French". For Newsweek, it was all the same; and it was all socialism: whether health care or bank bailouts, it's all simply government spending. Moreover, Newsweek never seems to have gotten the message from the strikers and demonstrators in Europe that present-day Europe is capitalist, it's even market fundamentalist, and that not everyone is happy to be sacrificed to the profits of the European bourgeoisie.

. The fact is, we're not all socialists now, not here in the US, nor in Europe. The economy is divided between the working class majority, which is exploited in the best of times and particularly hard hit by today's economic crisis, and the rich capitalist minority. Real socialism is a policy of class struggle by the working class against the capitalist rulers of this country.

. Yet not just Newsweek, but much of the reformist left promotes government ownership as socialism, no matter who runs the government. For them, nationalization is socialism, even though the capitalists run the government, and the government-owned enterprises are managed in the interests of the capitalist class as a whole, if not always in the interest of this or that particular capitalist. In essence, they don't recognize the existence of state-capitalism, capitalist exploitation directed by the state. They generally don't have a class outlook towards the government, regarding government actions as simply the result of better or worse policies, and not looking too closely at the class interests that lie behind these policies.

. Now, it is true that socialism means the social ownership of the means of production, the ownership and management of the economy by the population as a whole. The economy should be run, not to provide capitalists and financiers with incomes hundreds of times greater than workers, but to provide for the general welfare; indeed, management shouldn't be the province of a separate class, but should devolve on the workers themselves. But if the working class as a whole is to direct the economy, then the government too must be a workers' government. And for a whole period of time, until the achievement of a genuinely classless society, this means government ownership and control.

. But the reformists distort this principle by regarding government ownership in itself as general social ownership. They forget about the issue of who owns the government. This means forgetting that the capitalists dominate bourgeois countries as a class, and not only as a sum of individual entrepreneurs. The capitalists not only run the corporations, but they build class-wide social and political institutions and use the government to enforce their class rule.

. Many reformists also regard that the Stalinist Soviet Union, during the years of its existence, was socialist, because it had state ownership. In this they agree with the Stalinist parody of communism. They differ from the Stalinists only in that they regard the old Soviet Union as a distasteful variety of socialism, because of all the repression. They separate the politics and economics of a country, believing that a country can have a political system that sits on top of the workers, but an economic system that serves their interests.

. On the contrary, socialism means the working class runs the economy, both from above, through a government of the working class, and below, through mass initiative. There will be more and more government ownership, as the private capitalists are expropriated, but it will be government of a very different type. The politics and economics of a country aren't two completely distinct things. It makes a difference to the economic nature of a country, to whether it is socialist or capitalist, whether the government represents the capitalists, and is itself the country's largest collective capitalist, or whether there is a workers' government.

. Moreover, eventually, as the working class learns to run the economy thoroughly and distinct class divisions in society start to vanish, government functions will become less and less political. This means that its decisions will less and less involve substantial economic conflicts between different groups of people, and more and more take on a merely practical and technical character. There will be still be a central authority responsible for the overall direction of the economy, but, as Engels says, "The government of persons is replaced by the administration of things and the direction of the processes of production."(5) At this point, there will be fully social ownership of the economy as a whole, and it will be quite distinct from the today's government-ownership of enterprises, which are left to run on capitalist principles.

The fallacy of the Trotskyist transitional program

. The Trotskyists present themselves as the alternative to reformism and Stalinism, and yet they have the same basic idea that government ownership, in and of itself, is socialism. Thus they believe that nationalization is a transitional step, which, in and of itself, helps undermine capitalism.

. Now, as mentioned above, a revolutionary government will make use of nationalization. And, prior to the revolution, in a period of growing mass activity and increasing steps against this or that aspect of capitalist power, the masses will increasingly influence the nationalized enterprises no matter how far the government resists this. Thus, in a period of revolutionary crisis and growing mass activity, a series of nationalizations might hurt the power of the bourgeoisie, and become a growing wave that leads towards their expropriation. So in such a situation, nationalization might well be a transitional step.

. But nationalization doesn't create a revolutionary crisis in itself. It's not special transitional demands that create a revolutionary situation, but a revolutionary situation that results in certain demands being transitional. So when there isn't a revolutionary crisis, nationalization doesn't have any transitional significance at all, and may be simply a method of preserving the old financial system in a period of economic distress. .

. The mistaken assessment that nationalization is a transitional step in itself would lead the working class to overlook the real significance of present-day nationalizations. But, it may be said, doesn't nationalization, even under today's conditions, lead to many people thinking about socialism who yesterday might have regarded it as a swear word? Doesn't it help break down the idea that "there is no alternative" to surrendering to market forces. No doubt, and activists should utilize this interest in socialism to push forward a revolutionary critique of capitalism.

. But we must utilize this interest to help encourage the workers to see the class basis of socialism. We must help spread a contemptuous attitude to the bourgeois claims that "now we're all socialists" -- Wall Street and Main Street alike, and insist that socialism can only mean the liberation of the working class from capitalist exploitation. We must help the masses move forward, from seeing the need for government intervention, to seeing the need for the working class to intervene in the government and the government enterprises. Otherwise the interest in socialism will turn into support for this or that bourgeois scheme. The idea of nationalization as inherently socialist helps the bourgeoisie make its transition from neo-liberalism back to somewhat more regulation and a more mixed economy.

Present-day demands

. Today it's unlikely the workers can have much influence on the type of nationalization that takes place. At a time when we can't even restore the minimum wage to what it was a few decades go, eliminate vicious anti-union laws, or get national health insurance, it's hard to see how the masses can have much influence on the plan the government will adopt for finance. But nationalization without compensation to the financiers can be put forward to show that commercial credit and other necessary banking functions could be restored without having to bribe the financiers and pay off their debts. It could highlight the parasitism of the financial sector that plays such a large role in modern monopoly capitalism and absorbs such an increasing portion of the surplus value extracted from the working class. We should not create the illusion that radical nationalization is likely at present, but the working class should always counterpose its view of nationalization to that of the bourgeoisie. Even today, such efforts will help the working class see how paltry are the half-measures of the bourgeoisie in the face of the crisis, and see through the plans to squeeze the masses in the name of rescuing the economy.

. Moreover, the decline of the workers' movement will not last for ever. We face deeper crises in the future, and a rebound of working class organization will eventually come. At that time, it will be important for the working class to know what to fight for, and what to oppose, with respect to nationalization.

. So with regard to the banks, we can demand a real nationalization -- and one carried out without compensation to the rich -- as an alternative to the disgraceful trillion dollar bank bailouts. We can use this possibility to help encourage the mass hatred of the Wall Street bailouts. But we must distinguish between nationalization that creates a public sector that abandons neo-liberalism, and temporary nationalization to get the bankers out of trouble. And we must put pressure on the government sector even after neo-liberalism, because so long as there is a bourgeois government, even nationalized institutions are controlled by the bourgeoisie. So instead of being carried away by the word "nationalization", but the working class must continually lay stress on the conditions of nationalization:

. But the working class will achieve little, either with respect to the way bank nationalization is carried out, or in obtaining relief from mass impoverishment in the crisis, unless it carries out mass actions in its defense. It is the collective struggle of the working class, its organization distinct from the bourgeoisie, and its willing to fight the capitalists in strikes and demonstrations, that is crucial. The pro-capitalist politicians and bourgeois economists would have the workers believe that the benefits of bailing out the financial sector will trickle down to the workers: this is just as false as any other aspect of trickle-down economics. To counter this, we need a policy of class struggle with respect to nationalization just as much as in the struggle with individual employers. <>


(1) "A Bank Bailout That Works," The Nation, March 4, 2009,, emphasis added. (Return to text)

(2) "The Quiet Coup," Atlantic Magazine, May, 2009, (Text)

(3) " 'Economic Crisis As Bad as the 90s': Report", March 31, 2009, The Local: Sweden's News in English, (Text)

(4) "Borg forecasts mass unemployment," The Local, April 1, 2009, (Text)

(5) Engels, Herr Eugen Durhing's Revolution in Science [Anti-Duhring], p. 307, International Publishers' Edition. (This is a few pages from the end of Chapter II, "Theoretical", of Part III, "Socialism".) (Text)

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