When Alistair Darling, the chancellor, put £37 billion into three British banks, effectively part-nationalising them, in mid-October in the hope of stabilising the banking system, it capped a remarkable few weeks. Here were New Labour, champions of the free market and the City of London, doing something Old Labour had never dared. This happened just days after the return of that arch-neoliberal Peter Mandelson to the cabinet and was all done with the backing of the party of Margaret Thatcher. The months of flailing about over the fate of Northern Rock before finally nationalising it – such was the terror Brown had about the City’s response – were long gone. After all, if George Bush could launch the biggest nationalisations in history, as he did back in September with the takeover of the mortgage giants Fannie Mae and Freddie Mac and the insurer AIG, Brown’s political cover was now considerably greater.
The free market ideological dogmas of the past 30 years are falling as fast as the banks. Yet despite the hysterical cries by some right wing US Republicans that this was tantamount to “financial socialism”, these are nationalisations to protect capital, not expropriate it. The actions of the state are aimed at staving off the complete collapse of the global financial system and protecting “their” national capitals. No doubt they hope this is a temporary dose of “state capitalism” but in all likelihood the relationship between the state and capital is being recast. Can it work? And what does it tell us about the real nature of the world we live under, and the new era we are likely to be entering?
Karl Marx’s insistence that capitalism is an inherently crisis-ridden system is being sharply underlined. But we are also seeing visible proof that the state still plays a pivotal economic role in contemporary capitalism.
This may seem almost self-evident today as bankers and politicians clamour loudly for the state to intervene ever more aggressively, with ever more money, to prevent disaster. But the dominant view over the last 25 years was that what we now call globalisation meant that capital, or at the least the giant multinationals, had been set free from any dependence on the state. The champions of globalisation seemed to believe that the world economic system was now composed of evenly distributed free wheeling firms, detached from the system of states.
This picture was even accepted by much of the left who contrasted the apparently vast power of multinationals with the puny resources of the state and the helplessness of workers in the face of “footloose” capital. Any attempt to strike a more favourable bargain for higher taxes or better wages would simply provoke the economic titans of globalisation to up sticks, pack up their factories, and move to more favourable, and cheaper, climes. Social democratic reforms, let alone revolution, seemed ruled out. Michael Hardt and Antonio Negri’s influential book, Empire, famously epitomised this view among opponents of the system. They accepted the claim that the era of nation states was over, replaced by a merging of sovereign power into a single extra-territorial entity. One conclusion was that inter-imperialist rivalries were a thing of the past. If the string of wars undertaken by the Bush administration to gain leverage over its economic rivals (and potential future military ones) knocked some holes in that idea, the crucial role played by the most powerful states in the unfolding economic crisis underlines the reality that we still live in a world of rival states as well as rival capitals, and the two are mutually interdependent.
One response of critics to some of the wilder claims of globalisation theory was to point out that it often involved a confusion between two different types of capital – productive capital (the physical means of production) and money capital. It is considerably easier for “hot money” to move around the world at the press of a button on a computer, seeking the highest returns, than for factories, offices or mines (together with the carefully assembled linkages to other suppliers, distribution networks and so on that are vital to production taking place) to be either abandoned or uprooted and transported elsewhere on the globe. Of course, it can be and is done but the overhead costs mean it is a rather more cautious process than the seemingly unrestricted movements of speculative money.
But now the deep crisis gripping the financial markets is clearly demonstrating the ability of even the most apparently disembodied forms of capital to defy gravity and separate from all forms of dependency on the territorial nation state. Crises sometimes act as moments of truth when the real underlying realities suddenly assert themselves, destroying old illusions. The nationalisations, government underwritten forced takeovers of banks and mortgage lenders, huge bailouts, and colossal sums being pumped into the markets by central banks across the globe, all forcibly demonstrate the ultimate dependence of even the most rarefied forms of capital on the state as the guarantor of last resort.
The current crisis has its roots in a wider weakness of the rate of profit across the system. But paradoxically, as Marx pointed out, crises are a way capitalism can restore itself to health. In a crisis huge chunks of capital are destroyed, but this absurd waste also provides the necessary conditions for profitable production to be restarted. Bitter struggles take place as rival capitalists struggle over which of them will bear the price, with the winners who survive shifting the burden onto the losers who go under. The capital of some of the bankrupt firms can be bought up cheaply, further boosting the prospects of the surviving capitals and their ability to remain profitable.
Such acts of cannibalism, where profitable capitals survive by devouring less successful rivals, play a vital role in something else Marx pointed to that has enormous consequences for the way crises develop in contemporary capitalism.
Competition gives way to monopoly as a mass of smaller firms are replaced with smaller numbers of ever larger ones that come to dominate national and then even international markets. Marx called this process the concentration (where the units of capital get bigger) and centralisation (leading to fewer firms) of capital. The shakeout that crises lead to can accelerate these trends.
In Victorian Britain production in the new textile industries was undertaken by a myriad of competing small, mainly family-owned companies. Towns like Bingley in Yorkshire (as in the now nationalised Bradford and Bingley bank) stood at the very forefront of the industrial revolution and it alone would have had several mill firms.
Capitalism in the 21st century presents a very different picture, with production dominated by vast multinationals, with most advanced states possessing just a handful of aerospace producers, car manufacturers, arms firms and so on. One estimate suggests that in 1910 the biggest 100 firms in Britain accounted for 16 percent of total national output. Already by 1970 this figure had risen to 50 percent.
This has far reaching implications for the nature of any crises that erupt. If there are hundreds and hundreds of textile firms, then a crisis that wipes out some can, far from damaging the survivors, actually help boost their profitability. But the collapse of a huge multinational firm like the US car manufacturer General Motors (and it is currently making huge losses) can have very different consequences. Such giant firms provide huge markets for other firms, from steel producers to component manufacturers, as well as employing tens of thousands of workers whose wages provide markets for retailers, mortgage lenders and so on. The fall of a company the size of General Motors runs the risk of dragging numerous other firms down with it, some of which at least will be potentially still profitable. The toppling of a giant can destroy more efficient companies as well as inefficient ones and its impact is much more unpredictable and dangerous. Again the decision to let US investment bank Lehman Brothers collapse is what precipitated the dramatic deepening of the financial crisis in mid-September as the rich sought to pull their wealth out of any institution deemed risky, so running the risk of more bank collapses.
Gordon Brown’s hollow claim to have abolished the boom-bust cycle is, of course, being mocked by events. But it is important to notice that beneath the ebb and flow of expansion and contraction capitalism doesn’t simply stay the same. One response to the return of crisis is to suggest another boom will be along soon, so the system will return to dynamism after a brief, albeit unpleasant, pause. Recessions and crises are here presented as just the overhead costs of capitalism’s vitality. Apart from ignoring the terrible human suffering that even short recessions can produce, what this defence of the system overlooks is that capitalism isn’t like an ocean tide, where despite the surface swirl it has an essentially eternally repeating pattern. The dynamic of capitalism itself profoundly alters its structures as competition and crises drive forward the process of concentration and centralisation. Capitalism gets older – it ages.
Crises under ageing capitalism are more terrifying and it becomes harder and harder to ensure the survival of efficient, profitable firms while letting unprofitable firms go to the wall. But without the purge of weak capitals, the clear-out is limited and the prospects for renewed expansion are undermined. Unstable booms are followed by repeated recessions and crises. This is, of course, the picture of the world economy over the past 30 years, with recessions in 1973 to 1975, 1980 to 1981, 1990 to 1991, the crisis of the Asian “Tigers” in 1997 to 1998, the collapse of the “dot.com” bubble in 2000 to 2001 and the onset of the greatest financial crisis since the Great Depression last summer.
But there is another feature of capitalism today that looks very different to Marx’s time. The nation state plays a vastly greater economic role today than in capitalism’s youth. Of course, the capitalist state always played a pivotal role in the early development of capitalism, especially through the application of force to compel labour off the land and into the cities, to wage wars of plunder and numerous other barbarities. But the sheer economic expansion of the state is striking. At points during Marx’s lifetime the British state accounted for just 8 percent of total output. By 1914, on the eve of war, it stood only a little higher at 12.5 percent.
In 2007 to 2008, even before Darling’s staggering bailout, total government spending was expected to amount to 40.5 percent of Britain’s total income. What’s most remarkable about this is not only its scale but that this is slightly up from the figure for 1963 to 1964 (although down from the all time peak of just under 50 percent in 1973 to 1975). In other words, the overall level of state spending in today’s “neoliberal” system shows no great divergence from the period of “Keynesian” state capitalism.
The ideology of neoliberalism – that the state is declining as an economic actor in the era of free market globalisation – stands in sharp contrast to “actually existing capitalism”. Nor is this a product of some failure to pursue the free market crusade far enough by self-interested politicians. Capitalism needs the state, not just in emergencies, but also for its everyday operations, whether it is to provide a skilled, literate and healthy workforce, or ensuring transport networks exist to move finished goods or raw materials. The state is also vital in protecting the interests of capital in home markets against rivals or promoting their penetration of international markets. The sheer magnitude of investments undertaken by the giant firms of today’s ageing capitalism require all these things on a vastly greater scale than Marx’s era. Capitalism in the 21st century could not survive for a day without the massive economic presence of states, whatever the illusions of the more die-hard neoliberals.
None of this means the state plays the same role in capitalism today as it did during the post-war boom. The relationship between the state, private capital and the world market has been significantly restructured. Faced with the return of crisis to the world system in the mid-1970s after three decades of unprecedented boom, the state everywhere has tended to retreat as the direct owner of chunks of the economy, and has been looking to driving up the competitiveness of “its” bloc of capitals on the world market rather than simply barring the entry of rivals into domestic markets. Those states that had gone the furthest down the road of state capitalism, in the old Soviet bloc, found it hardest to carry through this restructuring, especially given the way economic and political power became so intertwined in the ruling nomenklatura. But we are now seeing the limits of the new methods of allowing much greater sway for the market in solving capitalism’s underlying problems.
Can we nevertheless hope that the expansion of direct state intervention offers at least the hope of a more regulated and less vicious form of capitalism, one where there are greater prospects for progressive reforms? We may well see more regulation, but it doesn’t follow that this will benefit ordinary people. Just as capital maintains its dependency on the state, so too the state is dependent on continued successful capital accumulation, or it risks seeing the revenues on which it relies drying up and rival states beginning to successfully challenge it. So Northern Rock can be nationalised but still sack workers and have the highest rate of home repossessions. This is state capitalism to defend profits and the wealth of the privileged few, even if the interests of some capitalists are trodden on in the process.
The action of the state may (or may not) prevent the world economy slipping into something like the Great Depression of the 1930s, but by stopping the purge of unprofitable capital it imposes an enormous cost on all capital that can drag economic growth back for a considerable time. This is what happened in Japan when the enormous asset bubble of the 1980s burst and the banks had to be bailed out. It led Japanese capitalism to suffer a protracted period of stagnation throughout the 1990s from which it had only just recently begun to show new signs of significant growth now curtailed. If this fate befell, say, the US economy, it would be much more serious for international capitalism as a whole, since despite its relative decline the US remains the leading economy and has acted as the home for the exports of Asian economies for more than a decade.
But there is another consequence of the central role of the state in crises. It becomes a powerful arbiter over which capitalists survive and which go to the wall. This turns the economic crisis into a political crisis within the ruling class. The state becomes an arena of fierce struggles within the ruling class. Anyone who saw Richard Fuld, the former head of Lehman Brothers, at a Congressional hearing denouncing the decision by Hank Paulson, the US treasury secretary, to allow his bank to go down while stepping in to nationalise AIG, got a taste of the battles that erupt. The deeper and more intractable the crisis, the sharper these fights can become. As the ruling class is being forced to rip up its own self-proclaimed neoliberal ideology as they look to the state to socialise their losses and protect their interests, it risks a sharp upsurge in class anger from below.
One of the ideological goals of neoliberalism had been to depoliticise the economy. Privatisations would free the state from any political responsibility for the prices, profits, service levels and wages of more and more of the economy, which could be presented as governed by the “natural” laws of the markets and not political choices. The scramble for the state to protect capital from the crisis drastically undermines these claims and opens the door to demands from below. If the state can act to bail out banks, why can’t it act to bring down electricity prices, or to protect jobs?
The combination of the inevitable attempt to shift the burden for paying for the crisis onto workers’ shoulders, whether it’s lower welfare spending, wage cuts or increased exploitation, together with the re-ordering of relations between states and private capitalism, is a dangerous one. It has the potential to ignite an explosive restructuring of the relations between the two great contending classes of capitalist society: capital and labour.
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