CLASS STRUGGLE AND THE STATE:FROM KEYNESIANISM TO NEOLIBERALISM

This section is from a paper I wrote on Emissions Trading Schemes and the neoliberalization of carbon for a course called 'Key Debates in the Study of Capitalism.'  This section is a good overview of the differences between Keynesianism and Neoliberalism, so I thought I would share it.

Akin to the emergence of the environmental movement in the 1970s the last decade has witnessed the re-emergence of the environmental turn in both academia, the political constituency and the working class as well as its recuperation by the state and capital. However, unlike the flourish of historic legislation that was instituted in the United States and Europe in the 1970s, the omnipresence of 'global warming' today has not similarly manifested itself in renewed environmental regulations or if it has the principles behind the new legislation are markedly different. What accounts for this reversal and policy change? Why has the environmental movement, so successful in the 1970s been unable thirty plus years later to maintain its effectiveness and protect human and nonhuman life from capitalist exploitation and degradation? The answer can be found in the transition from Keynesianism to Neoliberalism and the alteration in power relations that are born from this historic shift. For neoliberalism represents an attempt by capital to reclaim conditions conducive to accumulation through an attack on working class gains, and in order to accomplish this feat it must dramatically alter the formation of the state and the state's mediation of capital-nature relations.

The environmental legislation of the 1970s was premised upon the principles of state regulation of the environment through the erection of state agencies geared towards regulating business relations with the environment, measures designed for land and species preservation and conservation, and designating what could be externalized and what had to be internalized as a cost of production. The formation of the EPA was a landmark in state regulation of capital's relations with nature. Overall, the environmental movement of the 1970s was successful in forcing limits on capital: making it internalize some of the ecological and social costs of production and in limiting its access to nature in both a qualitative and quantitative manner. However, as all of these limits placed upon capital occurred through a movement that worked “in and against the state”, they were not fixed in stone but subject to erosion or elimination based upon a loss of power to capital. This loss of power is exactly what has occurred over the past twenty-five years and with it environmental regulations and enforcement. Capital's power over labor through the state has increased dramatically and been able to re-impose a capitalization of nature that far succeeds that of previous decades. This power alteration between capital and labor through the state is starkly apparent when we delineate the different theoretical logics of each form of capitalism, how they are historical responses to the power of labor vis-a-vis capital and how each encompasses different strategies in terms of how the state should mediate capital-nature relations.

The Keynesian State signals the emergence of the state as a regulative arm of the economy, primarily in its attempt to smooth out the business cycle to prevent another Great Depression or long-lasting recession. This is the major difference that separates Keynesianism from capitalism's prior to its existence. Rather than letting the business cycle self-regulate the state was expected to intervene directly into the business cycle and ensure that the conditions for continued economic growth, i.e. accumulation, were maintained for reasons of political sustainability. Additionally, Keynesian policies represented a rupture from previous economic orthodoxy's because its spotlight was concentrated on effective demand, as it assumed that a lack of effective demand contributed to the Great Depression and the inability of the business cycle to regulate its way out of depression into growth. Appropriately, the state's primary role was to ensure effective demand through enlargement of the public sector, increased taxation, running state deficits and the attempt to institutionalize the 'productivity wage' by tying wage increases to productivity increases. 

Keynesian policies represented a profound change in capitalist relations with labor. They were a response to the newfound power of labor through unionization and the fact that wages became “sticky downward.” As a result, the old methods of regaining growth through increased unemployment and wage reductions were no longer successful. Rather than grapple with the political and social ramifications of wrestling with labor Keynes advocated that through the “productivity wage” the power of labor could be used to capital's advantage. By implementing taylorist and fordist principles of production rates of profits would be regained at the same time as the objective conditions of the working class increased: it was a win-win scenario. The solution was not to announce a war on labor but to bring unions into a compact with capital and the state.

In combination with the “productivity wage,” increased taxation upon business in-conjunction with running state and federal deficits were instituted by the Keynesian state as a strategy to insulate effective demand – the newfound key to economic growth – from downturns in the business cycle. By increasing taxes and running deficits massive public works projects could be instituted that maintained employment and thus consumer spending irrespective of recessions. These policies were also expected to reduce the severity and length of recessions through maintaining effective demand and therefore, hopefully, investment opportunities. Additionally, the government became more active in monetary policies and creating the conditions necessary for economic growth through the Federal Reserve which regulated interests rates and the liquidity of money through the central bank, both of which were either increased or decreased based upon upswings and downturns in the business cycle. The federal government now acted directly in economic matters to balance growth, consumer spending, inflation, productivity rates and wage levels.

Before I explicate the major differences between the Keynesian state and the Neoliberal State, it must be understood that Neoliberalism emerged as the dominant capitalist response to the crisis of Keynesianism that emerged in the 1960s and 1970s. A rupture in the “productivity wage” with wage increases outpacing productivity increases meant falling profit rates, slower economic growth, rapid inflation. These production problems combined with a student revolt in the university system, an energy crisis, the civil rights movement, colonial rebellions and the reemergence of economic competition from Europe and Japan led American capital to squeeze labor through rising inflation, automation and reductions in real wages, pensions, healthcare benefits, and union power. Moreover, capitalism launched this attack against labor through the state which was now regulating capital-labor relations. What emerged out of the Keynesian crisis was an attempt to reclaim conditions suitable to economic growth, which required a decrease in the collective power of labor and therefore altered capital-state-labor relations: alterations whose unity is referred to as Neoliberalism. 

Neoliberalism represents a significant break with Keynesian theory and practice and constitutes a return to several basic principles of orthodox economic theory but with a more statist glare. The foremost discrepancy is that Keynesian economies were largely production orientated and production led. Growth under Keynesianism was based upon expansion of commodity production within factories through taylorism and fordism. As a result, industrial capital was the dominant faction of capital and its demands were adhered to by the Keynesian state. However, under Neoliberalism finance capitalism is the key factor, thus monetarism is the predominant economy theory and policy guiding capitalist growth into the twenty-first century. Not only has there been an explosion in the financialization of everyday life since the 1970s, with almost all social relations being incorporated into financial markets but there has occurred the exponential growth in secondary and tertiary capital markets with the emergence of derivatives, hedge funds, mutual funds, commodity markets, currency markets, and future's markets (Martin 2002). Whereas Keynesian growth was premised upon the M-C-M' cycle Neoliberalism has sought liberation from direct commodity production with its inherent complexities and labor problems through a flight to M-M' (Arrighi 1994). Neoliberalism is a phase of capitalism engulfed in speculation and the financialization of all social relations, an impetus reflected in the predominance of and dependency on credit that fuels the escalation of consumer and national debt. 

The move from production-led to finance-led capitalism is not the only major difference. There are significant alterations in the role of government in the economy. Neoliberalism represents a movement towards pre-Keynesian economic theory and practice, where government intervention into market operations are generally considered detrimental to economic growth. It is presumed that the business cycle can regulate itself through the laws of supply and demand and that government intervention to alleviate market slowdowns or turndowns will only exacerbate the movement back towards equilibrium by upsetting the basic operations of the market. Subsequently, government is expected to take a hands off approach and let business regulate itself. However, this theoretical logic rarely applies to practice where the neoliberal state is expected to create markets and enforce their existence - legally and militarily – through enclosure, privatization, commoditization and marketization. In addition to securing the existence of markets and their continued functioning because it is presumed that through the coercive laws of competition markets are the most efficient allocators of resources and the mechanism that best ensures personal freedom and liberty state regulated industries or resources are forced to 'deregulate' themselves and become subject to privatization and the laws of the marketplace. State regulation in the form of the provision of services or setting the terms of exchange - the price of goods and the quality of goods - are denounced as bureaucratically burdensome, economically harmful and a limitation on choice. 

Another primary attribute of neoliberalism is the emphasis placed upon the 'free mobility of capital' and the necessity of creating a 'positive environment for economic growth.' These phrases amount to the reduction and elimination of barriers on capital movement “such as tariffs, punitive taxation arrangements, planning, environmental controls, or other locational impediments (Harvey 2005:66).” Coinciding with the calls for reduced taxation and the reduction of state regulation is a direct attack upon the formation of a social welfare state that occurred through Keynesian policies. Budget austerity is imposed, first upon New York City and then on numerous states and the federal government in an attempt to force state's to reduce social service spending and taxation levels on business. These maneuvers are conducted in an attempt to free capital of the gains forced upon it by labor and the working class and thereby restore the conditions favorable for an increased rate of profit and economic growth. By preventing states from running deficits and implementing balanced budget demands capital succeeds in lightening its 'obligations' to labor through a reformation of the state in a Neoliberal manner: one where markets reign supreme. The most recent example of budget austerity, as of this writing, is in California under Governor Schwarzenegger. 

The state therefore appears to recede from the lives of individuals as the markets take over the functioning of everyday life. In actuality, the state's form has merely been altered in a manner that puts the control over the facets of life in the hands of capitalism, a transition that can only occur through and with continual support by a reformulated state. This philosophical and political transition in the state, from Keynesianism to Neoliberalism, cannot be explained through a systems theory approach describing the political-administrative system as an autonomous externally constituted integrative mechanism that balances the demands of the economic system and the socio-cultural system. The state is an outcome of and historically constituted by the class struggle and represents the historical legacy and current configuration of class power. As class power has been dramatically rescaled under Neoliberalism, where capital is on the offensive and labor the defensive, the state becomes a purveyor of neoliberal principles, which is explicit in the articulation of carbon trading and emissions trading schemes as the premiere strategy to combat global warming. 

Bush's Economic Stimulus Plan - Part I

Bush released his 'economic stimulus plan' today and called for more of the same, that is, neoliberal economic restructuring. We are told that we must institute more of the same restructuring to solve problems that the last round of restructurings were supposed to solve. Fool the U.S. population once, looks like you can fool them again and again.

If you watched the Bush proposal, as I did on C-Span, and then the followup debate with Edward P. Lazear , President's Council of Economic Advisers and Henry M. Paulson Jr., Department of the Treasury, then you actually learned quite a deal about the basics of Neoliberalism: what it is what it is not.

The primary problem for Global capitalism and many national capital's is a downturn in U.S. consumer spending. For it is the US's ability to run massive consumer and national debts that is fueling global capital growth, even though that growth percentage is weak, as a historical average. U.S. consumer overspending and thus increasing consumer debt props up a sagging global economy, without it the economies of Asia, notably China and Japan, and Europe, notably Germany, would be in a far worse state - most of these economies are export led and while they have strong domestic markets - China's is still developing, the others are pretty much solidified - their recent growth is export led. A downturn in U.S. consumer spending means that these national capitals need to find other outlets to pick up the slack, otherwise their economies will suffer a downturn as well. There is no telling where this increased demand might come from. China and India are not developing fast enough nor a rich enough middle class yet to devour these commodities. where will this demand come from? All look to the U.S. and the U.S. government, manager not only of US capital but global capital, puts forth the initial salvo that other countries might try and follow, if they can force it upon their citizens - knowing the collective organization of labor and the favor that the welfare state has throughout Europe, trying to get this policies enacted in Europe is much more of a struggle, but capital has been increasingly successful over the last decade of pealing back gains by labor under claims of global competitiveness, flexibility, nationalism and xenophobia. The U.S. government's - manager of collective capital - primary solution is therefore mechanisms to increase consumer spending at a time when U.S. consumer debt is at historic levels. the government's problem is then how to increase spending that is already economically unsustainable at a global level - correcting this imbalance would be catastrophic, so it must go on - at a personal level - people will be unable to save for retirement and forced to work into their twilight years - but moreover is ecologically unsustainable - an issue that no mainstream spokesperson dare raise. Trying to maintain or increase consumer spending at a time when it is out of control displays the irrationality of capitalist development and its need for growth.

This is where you see the first of two major components of Bush's economic stimulus plan, consumer spending must be maintained, as this is the key to growth. We will discuss the fetishization of growth in a little bit and how it is the sin qua non of capitalism. Back to consumer spending. the other major component was the solution - reduces taxes!

Now, there are several historical methods to increase consumer spending and thus prop up sagging effective demand:

(1) you can increase the wages of workers, thus shrinking profits for individual or sectors of capital while maintaining conditions for capitalist development as a whole. Since workers earn more money they can potentially spend this on commodities, thus realizing the profit (unpaid labor) in the commodities. However, this potentiality is the problem, capitalism must get workers to parley the increased wages into commodity consumption and not into savings - this struggle occurred throughout the 20th century - I think we all know that time free from work was turned into leisure time as cultural activities soon became recuperated into commodified activities - and capital won: time outside of work must now reproduce capital as well; it cannot be self-managed time allowing for self-determination. This was the major strategy under Keynesianism. It was able to get around the inverse ration between wages and profits through a relative surplus strategy of the 'productivity wage', where wage increases were tied to productivity increases. Thus working class power was tied to increasing capitalist power over labor, particularly as power over the labor process was given up under taylorist and fordist methods of production. Capital and the working class both won, supposedly, and as of the 1960s you might have given a qualified yes. but now it clearly seems that capital, on the offensive, is stripping away all the hard one gains of labor during the 20th century.

(2) find cheaper labor to produce the commodities, thus maximizing the existing buying power of another group of workers, hoping that they now buy more goods. this can be more problematic than the first strategy in the sense that this labor must be found either internally or externally of the country. Now, this is the major strategy of U.S. capitalism, under neoliberalism, since the 1970s. Faced with increased working class power, student rebellions, increased global competition - Europe and Japan - and so on, US capital moved to automation and an attack on unions at home and outsourcing abroad in an attempt to stagnate US wages while increasing their purchasing power through exploitation of South American, Southeast Asian or Chinese workers. This also has problems, labor in these foreign countries can also fight back, but moreover, trying to exploit other workers so that you can continue to exploit and maintain power over another nation of workers is best by difficulties. trying to prop up effective demand through exploiting one group more than the other is a tricky balance and one obviously failing since the U.S. consumer must still go into debt to buy products that cannot be automated or outsourced that effectively - they cannot be rationalized enough, yet: thus, the reason why housing, education, health care are some of the most expensive items and what generally drives people into debt and bankruptcy. This strategy can only work for so long and not for all commodities, and it is not working now, as education, housing and healthcare are out of reach of a majority of americans by any reasonable standard of affordability.

(3) reduce taxes is another strategy, one employed increasingly by Neoliberals as a guise under which corporations, the capitalist and upper classes dramatically cut their taxation levels and institute a regressive tax system. cutting taxes also dries up social service spending, allowing the neoliberal governments to cut social spending and services - which they are more than happy to since they want to privatize everything and do not want any social obligation to 'the wretches at the bottom' - they advocate social darwinism through the market.

Deconstructing Bush quotes

Bush: This growth package must be built on broad-based tax relief that will directly affect economic growth -- and not the kind of spending projects that would have little immediate impact on our economy. This growth package must be temporary and take effect right away -- so we can get help to our economy when it needs it most. And this growth package must not include any tax increases.

Bush thereby rules out "outdated" Keynesian policies designed to maintain effective demand through downturns in the business cycle. The Keynesian state's primary role was to ensure effective demand through enlargement of the public sector, increased taxation, running state deficits and the attempt to institutionalize the 'productivity wage' by tying wage increases to productivity increases. The Neoliberal state does away with about all of these policies, favoring reducing taxes, not running budgets for social spending - but military deficits are of course ok. Thus Bush writes off spending projects, not based on any empirical reality but based on ideology, because the state is not supposed to be a social service provider anymore or a funder of even last resort for projects - the market is to be sole entity that people turn to. Spending projects cannot be instituted because this would mean that taxes would have to be raised on the rich and corporations, the exact opposite of neoliberal theory and practice. The state is purely an institution for monetary policies/adjustment and a military/prison state.

When one looks closer his tax rhetoric is really about taxes on the wealthy:

Bush: Passing a new growth package is our most pressing economic priority. When that is done, Congress must turn to the most important economic priority for our country, and that's making sure the tax relief that is now in place is not taken away. A source of uncertainty in our economy is that this tax relief is set to expire at the end of 2010. Unless Congress acts, the American people will face massive tax increases in less than three years. The marriage penalty will make a comeback; the child tax credit will be cut in half; the death tax will come back to life; and tax rates will go up on regular income, capital gains, and dividends.

It is really about cementing the temporary reduction of taxes on the rich, for the 'death' tax and tax rates on capital gains and dividends are what Bush and the capital class care most about and where most of the money in tax reductions went. Because the rich are the only who are affected by the death tax and capital gains/dividends tax - most americans and especially the lower classes do not own any stock and if they do, it is a small amount in their ESOP.

Moreover, when Bush speaks it is also in half-truths or one-sided statements:

Bush: In a vibrant economy, markets rise and decline. We cannot change that fundamental dynamic. As a matter of fact, eliminating risk altogether would also eliminate the innovation and productivity that drives the creation of jobs and wealth in America.

Yes, markets rise and decline. the issue is to what degree do the people or an alienated form of government have control over this market and how far will they let the market rise and fall - it is an issue of control over the market. Also, the issue of risk is not eliminating it outright, for under capital risk could never be eliminated, but subordinating the market to control by the people and therefore reducing risk. It is a question of severity and on a continuum of risk, how much is enough? You can have innovation and productivity with a quality welfare state/social safety net - look at the western european countries, they have good rates of productivity, innovation and balance it well with a high standard of living. Trying to argue that the U.S. could not have innovation or productivity with a larger social safety net or even a nice cushy one - since we have the largest economy around - is plain ludicrous. It not only assumes that people are inherently lazy and need to be forced to work but it is apologetic for an economic system premised on forced work and exploitation of labor - that needs us to work so it can extract surplus labor.

And to sum up, throughout the speech it is clear that capitalism is a system dependent on growth - that it is a 'grow of die' economy because the word growth was uttered 14 times. And the whole purpose of the bill was to address the "growth issues", nothing else, which means maintaining effective demand, which raises the problem of how to increase consumption when the market is in a downturn and for ideological and political reasons you are not going to increase wages, create spending initiatives and are unable to force greater exploitation on foreign labor, although this remains to be seen. Capital is thus in a bind and it must resort to reducing taxes, which is acceptable, as reducing taxes is a fundamental of neoliberalism. the problem with this is that it will only increase inequality in the long run and cause a further decline in the quality and quantity of social services and the infrastructure of the United States. It remains to be seen if the American public will buy this, but since it is not subject to a democratic vote or debate they will take it just like they accepted their $300 rebate last time and spent them on a sharper image foot massager.