Death of Socialism or Death of Europe

1In the first part of our reviews on how the world is changing through the crisis, we tried to describe the degree of the preparedness of countries to the intellectual economy, highlighting those that, in our opinion, are leaders in building the new economy. Now we want to share our views on what countries will become the main victims of the global depression.
But before going to the figures, on which we will carry out our “sentence” we should first explain what happened to these countries and how they have come to bankruptcy.
The 20th century became a century of socialism, and the reason lies not in the USSR and other countries of the socialist camp, but in the fact that the social-democratic ideas began to shape the development of Europe. So how did this happen?

By the end of the 19th century, the capitalist economies were out of breath from the cyclically recurring crises. This was observed by Karl Marx, who was vowing that the capitalist system would collapse after the next crisis caused by the overproduction of goods. And everything told us that the prognosis of Marx was about to come true, because overproduction had become a chronic problem of the capitalist economies – more goods were produced than there were customers. Drastic measures were needed, and the solution was found – the pyramid of consumption was turned. If previously the man first produced and then consumed, now he first consumed and then produced. By the way it was achieved, four forms of socialism can be distinguished.
State Socialism, or the European model of socialism. In this model the distribution of public goods is a state affair. The reasoning is simple: the state removes the excessive efficiency of the companies through taxes and distributes it among the citizens.
Taxes have always existed, but in the 20th century they were collected, not only in favor of the ruling class (the bureaucracy) and public needs, but also to maintain the solvency of all its citizens, which naturally led to an increase in the tax burden. Actually, the money that the state gives to a citizen through various forms of social services and guarantees, are returned to the economy, when he buys goods and services for which he previously would not have had money, respectively, enterprises can easily expand the production of these goods.
But this concern about the proliferation of citizens turned to parasitic attitude. A striking example of this is Germany, where people prefer to grow old living on unemployment benefits, rather than look for a job, the payment of which may be below the public benefit. Thus, the businessman is between the hammer and anvil – high business taxes strike on the one hand and on the other wage workers do not allow to reduce costs by requiring payment not lower than the state standards. And the introduction of minimum wages became generally a lethal drug from poverty.
Of course businessmen have been shifting production to countries where there are no such problems for business. It reached catastrophic dimensions when China chose a path of capitalist development. China, with its relatively educated and hardworking people and very cheap working hands, has become the funnel, which has sucked in the entire world economy.


The second, which is very close to the first, is the Nordic model of socialism. We may call it public socialism, because the primary role in the redistribution of public domain in these countries does not belong to the state, but to local self-governed institutions – municipalities. Moreover, although the level of the social expenditure is even higher than in the rest of Europe, the degree of the governmentalization of the economy is significantly lower. Here such an unprofitable large-scale nationalization of industries didn’t take place, as in other European countries, where this was a way of trying to avoid social disruptions caused by massive dismissals from bankrupt enterprises. And though this model worked even better than the pan-European one, the outcome was the same – bankruptcy.
A special case is Japan. This model can be called “corporate socialism”. In Japan, the brunt of caring for workers is not on the state, but on the corporations in which they work. Corporations, for example, provide their employees with housing. The outcomes of such an economic system are not very good either- corporations have become totally unwieldy. Japan is already in the second decade of stagnation, despite all the efforts of the Government of Japan to revive the economy, be it the zero discount rate, or the maintenance of the low-rate of the yen. Japan is not competitive with the new Asian tigers of economy, which have no such an onerous social system for business.
And finally, the fourth model of socialism – the United States. By way of redistribution of wealth, we can define it as credit socialism. The main feature of this model is, of course, is the developed mortgage system, which is supported by the State. In this model, housing plays a role of locomotive of the economy as a whole, as the increased production in this industry gives a multiplied effect – the construction provides with contracting other industries.
This model of socialism owes its emergence to the Great Depression. Its first institution was the Federal institute for bank housing loans, which was established in 1932, and whose activities are exempt from federal and local income taxes. The bank is something middle between a credit union and the central bank for 12 private regional mortgage banks (by the way, at this moment 8 of these 12 banks are in fact on the verge of bankruptcy). But, of course, the most famous American mortgage institute is the Federal National Mortgage Association, better known as Fannie Mae, established in 1938 by Franklin Roosevelt. In 1968, from Fannie Mae was allocated from the Government National Mortgage Association Ginnie Mae, which deals with social housing, and the Fannie Mae was privatized, but it is still an organization that is sponsored by the U.S. government. In 1970, the U.S. government created the federal mortgage corporation Freddie Mac, which, in essence, is the same as Fannie Mae, but according to the original idea of the States it had to create competition and thereby lower the costs of the mortgage loan. In 1999, Bill Clinton squeezes through the facilitation of the provision of mortgage loan, and the final outcome of it is known to all of us.
The system worked as follows, a mortgage association buys mortgages from banks with the money received by the associations from issuing their own securities, which were bought by both national and foreign investors, including the government. The popularity of these securities was due to the fact that in any case the U.S. government itself would, as it happens, take the responsibility for the payment of these securities. It is a kind of worldwide financial vacuum cleaner for pumping money from the global economy and loading it into the United States. While for the sake of fairness it should be noted that, for example, the easy money of Arab sheikhs has simply nowhere else to go. That is the money earned by them in the export of oil in the United States, are brought back to America.
But the United States is not the only country that went on that path. From the U.S. experience of the “market” stimulation have benefited economies from so many countries around the world. A very impressive example, when the student has surpassed the teacher is Spain, where the mortgage is provided for a term of up to 50 years. By stimulating housing Spain has demonstrated over the past decade a staggering growth, but with the start of the global depression this bubble burst, too.
Thus, at the moment we have, a crisis of all the old capitalist economies, this crisis is not of a conjecture type, as it is often stated by government officials in public statements, claiming that the crisis will stop by itself within one or two years, for which it is only sufficient to boost up consumer demand and provide additional liquidity to banks, but it has touched the very system, affecting the way of formation of consumer demand in developed countries. But the assertion that the main victim of the crisis is the U.S. is not true – the numbers say otherwise.
Many may reasonably argue that not all comes down to cash, that in the modern economy the human capital is crucial. But according to this indicator the world leader is Taiwan. According to the latest testing of students in the framework of the program PISA, which was attended by 57 countries, including all 30 OECD countries, i.e. all countries have the official status of developed countries, Taiwan ranked first in the world by the level of mathematical knowledge, on the second position is Finland, on the third comes Hong Kong, Korea on the fourth, and on the fifth the Netherlands. And, for example, the United States was the 35th, and Russia the 34th. In the rating of the level of scientific knowledge students from Taiwan ranked fourth, the first was Finland, the second Hong Kong, Canada the third and the fifth Estonia. United States in this ranking is in the 29 position, and Russia, respectively in 35. Thus, the level of knowledge, both in the U.S. and Russia, is lower than the average among the countries that participated in the study. By the way, Kyrgyzstan in both ratings took the last 57th position. Unfortunately, nothing can be said about the level of knowledge of Kazakh students, because they were not tested, but considering the above mentioned figures, I am afraid that they would not be very good for Kazakhstan.
Knowledge is, of course, good, but without investment, it will not bear fruit. And then one should pay attention to what occupies the minds of the world powers. At a time when the United States and European countries spend the already holey budgets of their countries to support the banks and broken motor car companies, the Arab and Chinese sovereign funds have started buying up the world and especially the European economy. By the leaders of Western countries, such activity of the eastern investors is welcomed investors, because thanks to it is temporarily stopped the fall in stock indices, and the crisis seems to have ceased to grow rapidly. But the crisis did not go anywhere, as consumer debts to the banks, and bank debts towards each other continue to grow as a snowball.
By giving money to the banks, the governments, first of all, do not allow the financial system to become healthier, and secondly, they strengthen their own debt, and, thirdly, exacerbate the situation with the debts of financial sector. State leaders have forgotten the simple truth, that you cannot save the private sector at the cost of the bankruptcy of the state. And if Europe has already made its choice, the Europeans will be working in enterprises owned by Asians, the United States still has a chance to survive as a great power, but all measures taken up to this time by the U.S. government, force to have doubts as to this question. But I am confident that America has a plan for economic revival, only it is too radical to start bringing it into life now, the crisis has not yet gone so deep as to hold open the bankruptcy of the old economy, and to begin building a new one.

Death of Socialism or Death of Europe