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Rethinking Marxism

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Betting the House
Anette Baldauf

Online publication date: 09 March 2010

To cite this Article Baldauf, Anette(2010) 'Betting the House', Rethinking Marxism, 22: 2, 219 — 230 To link to this Article: DOI: 10.1080/08935691003625323 URL: http://dx.doi.org/10.1080/08935691003625323

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RETHINKING MARXISM

VOLUME 22

NUMBER 2

(APRIL 2010)

Betting the House
Anette Baldauf
Since spring 2008, an unprecedented housing crisis has left the front yards of U.S. single-family homes littered with ‘‘For Sale’’ signs, foreclosure notices, and dead flowers. The crisis has emptied out entire neighborhoods in Florida, California, Arizona, and Nevada, destroying years of sustained community building. What is happening in the United States of America? How is it that mostly ethnic minorities and women are stripped of their minimal savings, and why is such a vast rip-off possible? If so many Americans are now dispossessed, relocated to shantytowns, or worse, dumped onto the street, why aren’t they marching on Wall Street? And, finally, are Marxist theorists able to make sense of this tragedy? Key Words: Housing Neoliberalism Crisis, Foreclosure, David Harvey, Subprime Lending,

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Since spring 2008, an unprecedented housing crisis has left the front yards of U.S. single-family homes littered with ‘‘For Sale’’ signs, foreclosure notices, and dead flowers. The crisis has emptied out entire neighborhoods in Florida, California, Arizona, and Nevada, destroying in one fell swoop years of sustained community building. Government data indicate that in 2008, the number of foreclosures increased by 81 percent. In concrete terms, this means that in 2008, banks foreclosed on 3.2 million houses. To put it another way: In December 2008, 3,100 homes went into foreclosure every day (Silverstein 2009). ‘‘I don’t know, I really don’t know, where I am going to go tomorrow,’’ one man described his state of mind while driving the moving van away from what used to be his home. Apocalyptic fear and painful self-reproach are described as prevalent responses to this wave of dispossession (Scelfo 2008, D1). What is happening in the United States of America? How is it that mostly ethnic minorities and women are stripped of their minimal savings, and why is such a vast rip-off possible? If so many Americans are now dispossessed, relocated to shantytowns, or worse, dumped onto the street, why aren’t they marching on Wall Street? And, finally, are Marxist theories able to make sense of this tragedy? Following the official acknowledgment of a housing crisis in September 2008, most analysts blamed the condition on two factors: fatal interest rates and subprime mortgages. In 2002, in the aftermath of the burst of the new economy and the attack on the World Trade Center, the U.S. Treasury confronted the imminent recession by aggressively stoking the engine of real estate. Alan Greenspan lowered the prime

ISSN 0893-5696 print/1475-8059 online/10/020219-12 – 2010 Association for Economic and Social Analysis DOI: 10.1080/08935691003625323

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interest rate from 6.5 to 1 percent, and announced his support for the expansion of non-fixed-rate loans (Greenspan 2004). During the same year, President George W. Bush expressed his belief in the innate connection between homeownership and economic security; in a speech in Atlanta, he assured his audience that ‘‘part of economic security is owning your own home’’ (Bush 2002). Within a short period of time, the number of homeowners grew exponentially and real estate prices in key areas like the West Coast, East Coast, and Florida increased 50 to 80 percent (Bake 2009). The annual subprime loan volume mushroomed from $65 billion in 1995 to $332 billion in 2003, and then to $625 billion in 2006 (Wyly 2009, 332Á/54). For a few years this situation seemed to magically enrich all parties involved. Getting paid on commission, mortgage brokers made a fortune expanding their circle of clients. They walked from door to door, sweet-talking deals like ‘‘28/2’’ that offered a two-year ‘‘teaser rate’’ followed by twenty-eight years of unbearably high mortgage rates. Mortgage brokers sold their contracts to mortgage banks, which, in order to spread the risk, cut and rebundled the mortgages into batches, paid credit rating agencies to sign them with a prime rating, and then traded what were now called ‘‘securities’’ on the global financial market. On the financial market, subprime mortgages turned out to be so profitable that banks could not get enough of them. Some financial institutions created deeply cynical commercials that solicited customers and mocked them at the same time. In one TV advertisement for the mortgage bank Lendingtree.com, a happy-go-lucky man shares his secret to success, flipping burgers in the front yard of an ostentatious mansion: ‘‘I am in debt up to my eyeballs.’’ As its tag line, the firm promised, ‘‘When banks compete, you win’’ (Lendingtree.com 2007). Then, in 2007 real estate prices went into free fall, and homeowners watched horrendous mortgage payments devour their equity. In the course of the liberalization of the mortgage market and the subsequent looting of the poor, many ‘‘home-debtors’’ lost their houses and their savings, too. For David Harvey, this scenario must read like a vindication. Since the early 1990s he has cautioned his readers against the ‘‘truly distinctive’’ foundation of the present capitalist organization (Harvey 1990). During Fordism, he argued, the postwar boom from 1945 to 1973 was enabled by the social compromise between labor and capital, and overaccumulation was effectively absorbed through temporal and spatial displacement. The crisis of Fordism became apparent when these options were no longer viable. Confronted with the saturation of the national and then the international market as well as the impossibility of further piling debt upon debt, Harvey claims, the regime of accumulation ceased to rely on the production of goods. Instead, it relied on the mechanism of dispossession: Growth is now achieved through the appropriation of those goods and territories that previously had not been considered objects of commodification. In the context of political economic practices and frameworks devoted to neoliberal ideology, Harvey sees capitalism raiding, robbing, looting whatever is necessary to ensure capital accumulation: education, health care, Iraq, water, and finally, people’s homes. Defining neoliberalism as the most recent incarnation of capitalism, he insists that its major feature is the disciplining and disempowerment of the working class (Harvey 2003, 2006, 2007). For Harvey,

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neoliberalism is a class project masked by a rhetoric of individual freedom, liberty, and the free market; neoliberalism’s real nature is class war. ‘‘If it looks like class struggle, acts like class struggle then we have to name it for what it is,’’ he concludes (Harvey 2005, 202).

The Everyday Life of Dispossession
If this is a class struggle, it has been a quiet one. In fall 2008, newspapers reported the suicide of a fifty-two-year-old woman in Massachusetts. She solved her personal financial crisis by sacrificing her life to the insurance company. The story provoked writers to momentarily withdraw their focus from Wall Street. They interviewed experts working in homeless shelters, on hot lines, and with psychiatric ambulances, relating the 200 percent increase in suicide rates to the real-life pains of foreclosure (Tursey 2008). Overcome by guilt over gambling away the family home, or failing to provide security for their children, many victims eventually perceived only one solution to their troubles: to leave life and debt behind. While suicides related to foreclosures are now officially recognized as increasing, another response, equally quiet but far less self-destructive, has gained popularity: fleeing debt. Some ‘‘underwater’’ homeowners (those struggling with a mortgage that is much higher than the current value of their house) are simply abandoning their houses, often without taking many of their possessions. In his speech in spring 2008, former Treasury Secretary Henry Paulson called this action deeply immoral (Paulson 2008). Mortgage banks often have to clear the houses with ‘‘trash out squads’’; they have to cover maintenance costs and still face the risk of fire and vandalism. Despite these hazards, the majority of mortgage banks refuse to renegotiate mortgage payments. In December 2008, Credit Suisse estimated that in the next four years, another nine million houses would enter the process of foreclosure (Economist Staff 2009). In point of fact, a foreclosed house is more profitable for a mortgage bank than a modified mortgage payment. The longer borrowers remain delinquent, the better the opportunities for the mortgage firm to extract revenues: fees for insurance, appraisals, title searches, and legal services (Goodman 2009). In a study published in 2009, the National Coalition of the Homeless asked homeless shelter employees what people do after foreclosure. The employees reported that most people stay with family and friends at first; after that they move to emergency shelters or straight to the street (National Coalition for the Homeless 2009). In the areas hit most drastically, this development has now left visible marks on the urban landscape. In California, where one out of twenty-five homes is in foreclosure, many of the displaced move into rental or mobile homes; some of them pitch tents. In response, in the city of Ontario, police bulldozed tent cities and confiscated the occupants’ possessions, allegedly because of hygienic concerns. In the previously booming city of Las Vegas, shelters estimate that the number of homeless people has tripled. Families live in trailers, attempting to maintain some of the routines that used to define their life. Amateur videos on YouTube document ‘‘the mobile homeless’’ in search of a safe parking spot (YouTube 2009).

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The Dream of Homeownership
In the United States, homeownership has historically been profoundly symbolic. Buying land and a house is generally considered to be a sign of stability and security as well as an indication of upward mobility. This is why a suburban home has long one of the fixtures of the American Dream. The promise of this dream drives U.S.-Americans in general and immigrants and ethnic minorities in particular. Homeownership is considered to be an essential component of becoming ‘‘American.’’ But in U.S.America, the concept of homeownership has long been interwoven with a strong racial discourse. While suburban development prospered in the postwar years, it was often impossible for African Americans to buy a house beyond the city limits. Innumerable recollections of suburban dwellers recall that when African Americans did make an attempt to settle in the suburbs, neighbors attacked their houses. This ‘‘politics of containment’’ (i.e., containing African Americans within disinvested inner-city territory) was made possible through a series of public interventions, such as the conspicuous absence of banks in minority neighborhoods or so-called redlining practices (Baldauf 2008). In the early phase of suburbanization, between the 1930s and 1950s, New Deal loan programs mandated the use of racially restrictive covenants that prohibited nonwhite occupancy of homes in white neighborhoods, and mortgage redlining prohibited the use of federally insured mortgages in racially integrated neighborhoods. Established in 1934, the U.S. Federal Housing Administration (FHA) was a major force in the institutionalization of a racially separate and unequal system of home financing. Favoring suburban development over inner-city redevelopment, its underwriting manual warned realtors in the late 1930s that ‘‘(i)f a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes. A change of social or racial occupancy generally leads to instability and a reduction in values’’ (quoted in Gotham 2000, 19). After the Home Owners Loan Corporation (HOLC) was introduced in 1933 to counter the drastic increase of foreclosures, its City Survey Program created ‘‘security maps’’ for every city in the United States. The maps marked some areas as high risk for mortgage investment; these neighborhoods and districts were given a ‘‘D’’ rating and defined as ineligible for federally insured mortgages. To indicate areas that banks should avoid when making loans, it marked off neighborhoods with red boundaries or shaded whole areas red (Jackson 1985; Hillier 2003, 394Á/420). ‘‘All Negro census tracts fall within this area, where loans have not been made by the major loaning agency, and loans will not be made,’’ the Chicago Housing Authority stated in 1938 (quoted in Pattillo 2007, 331).

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Reverse Redlining
In the late 1960s, at a time when the most aggressive expansion of suburban development was already completed, the civil rights movement persuaded the U.S. government to pass a series of acts that prohibited banks from engaging in open racism. In effect, the historic partnership between polity and private businesses

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developed more subtle forms of discrimination that continued to link race and markets while its spatialized credit system, at least temporarily, reanimated the financial markets in crisis. It has been argued that some of these problems began in the 1980s when, under the guise of opening credit opportunities to redlined neighborhoods, policymakers began to deregulate the lending market. The new regulatory framework established a neoliberal mortgage market, which institutionalized the subprime mortgage industry and the use of securitization while providing the necessary conditions for disparate lender activity in low-income, racialized neighborhoods. To spread the risk of making loans to low-income clients, banks were encouraged to rebundle high-risk mortgages and then sell the so-called securities on the global market; they were allowed to charge higher interest rates to borrowers, who were presumed to be higher credit risks (Aalbers 2009, 281Á/90; Hernandez 2009, 291Á/313; Dymsky 2009, 149Á/79). In the course of this profitable reevaluation, the pursuit of aggressive, predatory lending became a way to make the American Dream ‘‘accessible.’’ Brokers systematically targeted African Americans and Latinos/Latinas based on redlining schemes. According to Federal Reserve data, African American homeowners applying for mortgage loans were over 30 percent more likely to be issued a higher-rate loan than white borrowers with the same qualifications (HUD 2000). In the state of Nevada, though African Americans represent 6.9 percent of the adult population, they received 43.5 percent of the subprime loans (NAACP 2009). Because of this, United for a Fair Economy estimated that, from subprime loans, African Americans lost between $72 and $93 billion (Rivera 2008). Some African American associations now argue that this constitutes the most extensive crime against black Americans since slavery. ‘‘People are starting to get angry,’’ reported Mayor A. C. Wharton of Shelby County, Tennessee, in a show aired in February 2009 on PBS. The program reported that in some areas of Memphis, one out of ten homes was under foreclosure. Some neighborhoods were half abandoned; others struggled with the devastation caused by vandalized streets and rising crime rates. As the city government faced a major loss of property taxes, some officials decided to fight against what they saw as injustices. Like the cities of Cleveland, Cincinnati, and Baltimore, Shelby County began suing banks and mortgage lenders for predatory practices and ‘‘reverse redlining.’’ This historically charged means of discrimination was beginning to make neighborhoods look like New Orleans after Hurricane Katrina, Wharton argued. ‘‘We have people knocked out of their homes*/not by a sea tide but by an economic tide, which is just as powerful as any ocean,’’ he said. ‘‘They are wiped out overnight, they are waving with sheets saying, ‘Come get us out of there, rescue us’’’ (PBS 2009).

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The Neoliberal City
The dispossession of African Americans seems even more outrageous in light of another aspect of recent urban development. In the early 1990s, after decades of betrayal and neglect, the white middle class rediscovered the economic and cultural worth of city centers. Massive flows of capital and speculative movements of finance

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initiated a radical rescaling process in the city, which gave rise to unstable and uneven development. Critical geographers like Neil Brenner and Nik Theodore describe the so-called neoliberal city as a machine that produces market-oriented economic growth as well as elitist consumer practices while at the same time securing order and control of the so-called underclass (Brenner and Theodore 2002, 356Á/86). For many urbanists, the city of New York offered a telling template of this development. In the 1980s, in Soho, one of New York’s former industrial districts, Sharon Zukin observed the transformation of the urban landscape of production into a landscape of consumption. While pointing out the cosmetic aesthetization of the city, she argued that a strong alliance between bankers, realtors, media moguls, and the emerging professional-managerial class was now branding ‘‘loft-living’’ as an insignia of a bohemian way of life (Zukin 1989). For Neil Smith this process escalated in August 1988, when New York police forces cleared Tompkins Square Park and turned it into a battle zone. Smith described this scenario as a predatory class and race war and a blueprint for what is now generally called ‘‘gentrification’’ (Smith 1996, 3Á/29). Smith and many urbanists agree that this development accelerated in the 1990s in the context of entrepreneurial city governments and their fondness for private/public partnerships. The speculative rescaling of urban territory was built on an aggressive displacement of ethnic minorities. While street-level police violence continued to increase in the name of a ‘‘war on drugs,’’ many ethnic minorities were driven away by skyrocketing rental prices and terminated rental contracts; in some cases, their apartments and homes were set on fire to speed up their evictions. Some were paid off with pitifully small sums of money, but it was money that they could have used as a down payment on a small house in California or Florida. Indulging, for a moment, in the imaginary clarity of this ‘‘clean model,’’ it seems like the forces of racial discrimination have gone full circle. In the recent housing crisis, Elvin Wyly argued, subprime lending and secularization replaced local loan sharks and slum landlords with entrepreneurial brokers and lenders. ‘‘The agents may be different, but the exploitation remains’’ (Wyly et al. 2009, 352).

Gender Cartography
Class, race, and ethnicity may not be the only entry points for a social analysis of the housing crisis. As early as 2006, a study by the Consumer Federation of America showed that lenders were more likely to treat women as high-risk borrowers, and to sell them higher-priced subprime loans as a consequence, even though they had slightly higher credit scores than men. The study suggested that lenders targeted Black women most aggressively; African American women were up to five times more likely to receive subprime mortgages than white men. In two instances, when the federal government sued lenders for discriminating against African American women, the companies settled the cases for millions of dollars instead of going to trial (CFA 2006). But while race-based strategies of lending are made evident by deserted African American neighborhoods, the effects of women’s profiling are far less tangible. A discussion of the role of gender has been largely absent from the debate

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on the housing crisis, even though many foreclosure counseling organizations have described their typical client as ‘‘single, female, with two children, in her first house’’ (Leland 2008). Identifying women as high-risk borrowers, women’s organizations argue, is a new twist in the troubled relationship between women and credit. Store credit cards, national credit cards, and mortgage lenders all discriminated against women. Until the Equal Credit Opportunity Act was passed in 1974, most women could not take out a mortgage on their own. Mortgage lenders, including those trading in governmentbacked loans, considered single women too risky, married women could not get credit in their own names, and divorced women and widows had trouble proving they could pay back loans because their credit histories were interwoven with those of their departed husbands (Cohen 2003, 147). While attempting to overcome this exclusion and enforced domesticity, single women have become a major force in the housing market. In 2006, data provided by the National Association of Realtors suggested that single women made up nearly a quarter of all home buyers. For these women, homeownership often indicates success and independence: ‘‘I just got tired of waiting for Mr. Right to come along and start the American dream,’’ expressed one single woman homeowner interviewed for USA Today, adding: ‘‘I’m . . . doing it on my own and making it’’ (Knox 2006).

The Language of the Crisis
At this intersection of class, race, and gender politics, Harvey’s theory of neoliberalism as class war exhibits a series of limitations. Considering the way that race- and gender-based discrimination has shaped the landscape of foreclosure, is it productive to frame the housing crisis primarily in terms of class and class war? What are the implications of such a premise with regards to theoretical analysis as well as political interventions? For years now, David Harvey has stood apart from post-Marxist theorists who redefine class as one articulation within an array of positions of oppression, and so have challenged the premise of class struggle as the single crucial antagonism in society. Instead, Harvey still insists on the primacy of class and what he calls ‘‘a simple, traditional form of class politics’’ (1993, 44). Against poststructuralists, postmodernists, various social movements, and what he considers their essentialization of difference, Harvey calls for a universalist, class-based politics. Obviously, this approach has stimulated numerous debates as much as it has encountered harsh criticism*/for its economism, for reducing social difference to class difference, for essentializing class, for favoring similarity over difference, for not engaging with feminist critiques of Marxism, and so on (Deutsche 1996, 203Á/44; Massey 1994, 212Á/48; Young 1998, 36Á/43). While refining his argument, Harvey has continued to claim class as a social difference that crosses the scale from the particular to the universal. He insists that class politics is the only politics that is geared toward the destruction of its subject, and claims that class politics is the most productive motor in the universal struggle for justice (Harvey 1996).

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Ironically, in the 1980s, when Harvey was analyzing the transformation from Fordism to post-Fordism based on the premise of the regulation school, Julie Graham argued that his theory focused on a monolithic concept of capital accumulation that, incidentally, obscured ideas on class and social transformation (Graham 1991, 39Á/58). In fact, The Condition of Postmodernity (Harvey 1990) hardly focuses on questions of class and exploitation. But when Harvey does address class, he claims it is the essence of social existence. For this reason, Graham argued that Harvey’s account of the transformation from Fordism to post-Fordism was a totalizing account of capitalist development that failed to acknowledge difference and multiplicity in social life: ‘‘And when such a narrative is used in articulating the goals and visions of progressive movements, discursive silences become political exclusions’’ (Graham 1991, 53). Acknowledging the urgency of their agendas, Harvey always argued in favor of an integration of feminist struggles into the socialist program (2000, 46). But such an approach is based on a distinctive flaw. It positions the category ‘‘woman’’ always already within those paradigms that Marxism has historically assigned to the capitalist labor market while failing to use the contradictions expressed in the history of women’s work (affective versus mechanical, productive versus unproductive, paid versus unpaid, public versus private, immaterial versus material, flexible versus structured, etc.) as a means of overcoming the limitations of Marxist conceptualizations of labor and capitalism. By the same token, when the bank’s profiling of women is read as an element of the regime of capital accumulation, privileging class over gender or race fails to recover all those complex and contradictory stories in which gender becomes reenacted through finance and markets. In addition, by putting capitalist growth at the center of his analysis, Harvey’s macrotheoretical approach is unable, or unwilling, to grasp innumerable negotiations of everyday life, such as processes of appropriation and making do. By focusing on the regime of accumulation, Harvey can conceptualize change and ruptures solely in terms of a crisis; processes that subvert the dominant capitalist order and nourish potentially empowering, noncapitalist alternatives tend to escape his perspective. Moreover, Harvey is unable to explain how neoliberalism and deregulation came to be hegemonic: that is, how they came to be considered a fate for which there was no alternative. While focusing on the regulation school (as opposed to, say, Antonio Gramsci), Harvey attempts to dissect the mechanism of capitalist accumulation, but not to reconstruct the dynamic negotiations that reproduce capitalism from below.

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The Culture of Speculation
The housing boom enabled some U.S.-Americans to achieve their dream of homeownership, but it also inspired other, more destructive dreams of upward mobility. For several decades the Wall Street culture of speculation fed a subtle reevaluation and transformation of what Raymond Williams called a ‘‘structure of feeling’’. People, things, and even the lack of something, like debt, were approached as opportunities for investment. Building on a process of radical de- und recontextualization, an ‘‘investment fetishism’’ emerged that relied on a strong resonance

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between the neoliberal mantra of entrepreneurial freedom and individualism and the promises of the American Dream. In the context of this everyday life neoliberal sensitivity, saving money lost its common attraction and debt and credit came to be regarded as the engines of economic growth. A house was no longer seen as a physical shelter; it became an opportunity to make money fast. ‘‘Flipping a house’’*/buying it cheaply, fixing it up, and then selling it for profit*/was a middle-class pursuit. Studying real estate prices, Wall Street indexes and models evolved into a leisure activity and speculation a form of immaterial labor. The effects of this culture of speculation have become particularly evident in states like Florida, where many of the homes in foreclosure are located in zip codes that didn’t exist a few years ago. The majority of these houses were built between 2000 and 2006, when the State of Florida was America’s epicenter of new construction. With politicians, developers, and mortgage bankers working together closely, a Wild West mentality spread throughout Florida, encouraging all kinds of people to buy and sell houses fast. In 2007, the market started to collapse. Now Florida is dotted with deserted construction sites, ghost subdivisions, and roads that lead nowhere. Luckily, some people say, the houses are mostly built from wood (Arief 2009). They can be torn down easily and turned into kindling.

Strategic Essentialism
Given this landscape, the debilitating housing market, and the proliferation of the ‘‘nouveau poor,’’ Harvey’s critique of neoliberal class politics recalls what E. P. Thompson once described as the attempt to keep the ‘‘raw nerve of outrage alive.’’ His insistence on class and class war also recalls a project that Gayatri Spivak termed ‘‘strategic essentialism.’’ In her critique of the Subaltern Studies collective, Spivak proposed what she called the ‘‘strategic use of a positivist essentialism in a scrupulously visible political interest’’ (1995, 214). While her concept of political mobilization stimulated a vigorous debate among feminist theorists and practitioners, Spivak herself claims it was misunderstood; though strategic essentialism was thought to be a project that exposes an error, she meant to emphasize the strategic component of the endeavor. For her, strategic essentialism is an artifice intended to outwit or surprise the enemy. In other words, it is trickery pursued for political purposes. Following Spivak’s integration of deconstruction and political mobilization, Rosi Braidott argues, ‘‘One speaks as a woman in order to empower women, to activate socio-symbolic changes in their condition: this is a radically anti-essentialist position,’’ and she concluded, ‘‘the feminist today cannot afford not to be essentialist’’ (1994, 177). In the context of the present financial crisis, Harvey (2009) has warned that bailout programs might lead to an unprecedented consolidation of financial power and the restoration of the class project. With such a prospect in mind, Marxists today cannot afford not to be essentialist. But they might also allow themselves to be strategic.

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