The young Canadian who travelled to London to join the G20 protests recited the rhetoric of fellow marchers, calling for "a revolution to end capitalism and turn business over to a democracy of the workers."
Not content to leave this ideological statement fall where it may, the CBC interviewer asked: "Does that mean socialism, or perhaps communism?" The protester replied to the effect that others have their own labels, but he personally is a socialist.
Listening to this exchange reminded me of the axiom: "If you're young and you're not a socialist, you have no heart. If you're old and you're still a socialist, you have no brain." When considering his future choice between heart and brain, I hope our young activist studies history.
The year was 1917. The courtyard of Nicholas II's St. Petersburg palace formed the crucible, the Czar's repressions provided the fuel, and Marxist socialism provided the inspiration for what became known as Communism. Karl Marx, the father of socialism, would never have imagined that his theories would inspire over half a century of ideological tyranny that claimed hundreds of millions of lives and condemned billions more to life as vassals of an all-powerful and brutal state.
So how was it that the great socialist revolution that Lenin, Trotsky and Stalin promised would give "power to the workers and peasants" resulted in the total subjugation of the very people it was supposed to free? Because implementation of Marxist socialism's "state control of the means of production" required forced expropriation of farms and businesses along with such absolute control of people's lives that the proletariat would soon vote them out. Thus, totalitarian communism was born ... socialism without a choice.
Today's democratic socialists would argue that none of this horrible history means Marxist theories won't work in the presence of democracy; but experience with democratic socialism in countries such as Brazil, Mexico, Italy and pre-Margaret Thatcher Britain resulted in economic basket cases. On the other hand, China's economic miracle has shown that replacing socialism with free enterprise even in an otherwise totalitarian state unleashes immense living standard improvements.
In contrast to ideologically based socialism, free enterprise capitalism is simply doing what has come naturally to human beings since recorded time. People are natural traders; the trading of a stone axe for a pair of leather moccasins unleashed the natural forces of economic freedom.
But that barter approach had serious limitations. Firstly, it required a match of perceived value. Were the moccasins worth more, or less, than the axe? Secondly, there was no way of just selling the axe and travelling to the next village to buy seeds. The solution was a universally accepted currency. Initially, that meant selecting a good that was needed by everyone, such as cereal grains or precious metals. Eventually, wealthier countries enacted laws making paper money "legal tender" and issued notes backed by gold held in their treasury vaults.
But people also needed somewhere to store their extra "capital," so bankers built vaults for that purpose. The next step was, once again, natural. Some had more capital than they needed, while others wished to "rent" capital for personal or business purchases. Thus, bankers began to pay "interest" on capital kept in their vaults and then lend the capital to those who wanted it, adding a "spread" for administrative costs and profit. As trade between countries flourished, systems were established for banks in one country to trade currencies with banks in another, allowing for the buyer and seller to get paid in their own currency. Thus it was that what we today call capitalism was rooted in the money flows between people exercising their natural free enterprise instincts.
Capital markets are facilitated by a complex global system of international banking protocols and standards. But, just as it was when the first depositors carried their precious savings to the bank vault, the entire system is based on trust. The role of government in free enterprise market economies is to enact and enforce laws designed to foster trust, ensuring that the banking system is protecting the interests of the bank customers as well as society as a whole.
Banking laws and regulations are currently under re-examination; but it's important to remember that it wasn't traditional bank deposit taking, lending and foreign exchange services that fuelled this economic conflagration. Much of the fuel for this wildfire was contained in policies enacted by American Democratic presidents. In 1938, Franklin Delano Roosevelt created Fannie Mae "to ... encourage the building of affordable housing." Thirty years later, Lyndon B. Johnson created Fannie's "brother" Freddie Mac to "expand the secondary (i.e. securitized) mortgage market."
In 1999, responding to pressure from Bill Clinton's administration, Fannie Mae further eased mortgage qualification requirements for individuals whose credit was not good enough to meet normal banking standards. Over the next decade, Fannie and Freddie's mortgage portfolios mushroomed into the trillions, much of it tied to loans which normal capital markets wouldn't have made. Weakened lending policies stimulated such a booming demand that even Fannie and Freddie couldn't buy up all those risky new mortgages. A wider market for mortgage securities was needed.
Enter Wall Street's "shadow bankers" such as Bear Stearns, Merrill Lynch and Lehman Brothers, whose Ivy League-educated geniuses were given enormous bonuses for packaging these mortgages into devilishly complex structures bearing the appearance of quality investments. Somehow, even the supposed professionals whose job it is to act as the financial market's equivalent of fire risk agencies awarded these combustible mortgages their highest triple-A rating. Investors from around the world bought in big. The spark that ignited this tinderbox legacy of government interference and shadow-banking greed was the first sustained fall in house prices since the Great Depression.
The search for a cure for any disease requires finding and focusing on the root cause. In contrast to past major economic upheavals, pinpointing the root cause of this one is pretty easy: government policies which fostered hundreds of billions of dollars in loans which never should have been made and Wall Street brokerages who packaged up and sold these loans disguised as low-risk, high-return investments. Government will never admit its part, but I hope that ways will be found to hold the brokers responsible, and to prevent a re-occurrence.
Free enterprise capitalism has not failed. In fact, small and large business enterprises which form the bedrock of all wealth creation are just as much the victims of this unnecessary crisis as society in general. My message for our young socialist is that it is the freedom of people to pursue private enterprise which has accounted for the vast majority of human progress, while resting all of the tools of power in the hands of the state has been a principal cause of human misery.
Gwyn Morgan is the retired founding CEO of EnCana Corp.
Gwyn Morgan