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.