Tories often say that they don’t like the state. They say it’s a drag on the economy, dampening the risk-taking creativity of the private sector.
This is rubbish. The current economic crisis has underlined something that has been true throughout the history of capitalism – the state plays a crucial role in keeping the system going. It’s true that there have been changes in the relationship between the state and big businesses in recent years and these changes have had an effect on the way the current crisis has played out. This shouldn’t surprise us. Capitalism is a historical phenomenon. It arose under the pressure of specific conditions and has changed over time.
Nevertheless, capitalism has retained its central dynamics. All the changes we’ve seen happening to the system in recent times have grown out of the development of capitalism’s core characteristics: the exploitative relationship between bosses and workers, the drive for profit and competitive accumulation. In this article I want to briefly sketch the contours of the relationship between the state and capital, and look at how this relationship has evolved in recent years: what’s changed and what hasn’t changed.
Marx’s writings on the role of the state are relatively slight. He was never able to start the planned volume of Capital in which he was to address the question in detail. The comments he did make on the state are illuminating but insufficient. Later Marxists have fleshed this argument out, though by no means exhaustively. We can summarise the Marxist understanding of the state in the following way.
The state arises as a result of the irreconcilable antagonisms in a class society. It is not an eternal but a historical phenomenon. The state did not exist before the advent of class society; there was no state during the period of hunter-gatherer societies, which Marx and Engels dubbed “primitive communism”. The state is not neutral: it is an instrument of class rule.
The capitalist state itself differs from the states that existed in earlier kinds of class society. It concentrates into its control almost all of society’s coercive power. Where once feudal lords exercised power directly and personally over peasants on their land, the capitalist state centralises and formalises class coercion. To do this it brings into being a large network of paid officials – the police, judiciary, army, secret services, civil servants and so on. The rule of law, which provides for a large amount of formal equality, replaces the caprice of kings and queens. The smashing of the state apparatus would form a critical part of the abolition of capitalism and the transition to an egalitarian society.
One of Marx’s key insights was to realise that when a worker takes a job, she enters into a relationship not only with her immediate boss, but with the whole capitalist class. Capitalism is defined by the fact that workers produce surplus value which is the crucial basis of profit. For an individual capitalist enterprise to be averagely profitable, its workers must work with at least the average degree of intensity and efficiency across the industry as a whole. This is what Marx called “socially necessary labour time”, which of course is never fixed but is always changing. If a particular capitalist enterprise operates below this average, profits are dented; if they are able to get their noses in front and produce commodities more efficiently than average, through the application of new technology for example, they will benefit from enhanced “super-profits” until their competitors catch up.
So, through competition, capitalists fight over how big a chunk of surplus value comes their way. But units of capital don’t simply float along like lonely clouds – they are connected to each other by a thousand threads.
For example, an owner of productive capital – that is, capital directly employing workers to produce commodities – will not be able to claim all the surplus value extracted from her workers. Rather the bank which provided the start-up loan will claim its share, as will the owner of the land in the form of rent, and the state will claim its portion of surplus value in the form of tax and so on. Just as a river may begin with a single source but divide into many tributaries, so profits may be divided in many ways without changing the fact that the ultimate source of all profit is the exploitation of labour. But the precise way profits are divided makes a difference, especially when a crisis hits.
So different companies compete with each other – but are also thoroughly intertwined with each other and with states. If one company goes bust this will benefit its direct competitors but may harm other suppliers, companies or banks whose own activities depend in some way on the former company. What a tangled web capital weaves!
Band of divided brothers
So what attitude does the state take in relation to this chaotic market?
In the Communist Manifesto, Marx said the state was “but a committee for managing the common affairs of the whole bourgeoisie”. This is too strong. In practice the bourgeoisie is rarely capable of acting as a cohesive whole through a coherent strategy. As Marx elsewhere makes clear, capitalism creates two crucial divisions: the bosses have a shared interest in exploiting all workers, but they are also compelled to compete with each other. This second division, expressed in cut-throat competition between different capitalist enterprises, means it is not possible for the state to represent the whole bourgeoisie.
Instead the state intervenes in the economy to impose policies that it perceives to be in the interests of the “nation” – that is, of the capitals operating within its borders. This process inevitably involves helping out some companies while treading on the toes of others.
But states don’t just act in the interests of some companies – they fulfil functions which are essential to any capital and especially to large ones. Namely, the state oversees the regulation of commercial operations including the local currency, it guarantees the supply of labour power, it provides some protection for local markets and it maintains a monopoly of armed force which may be deployed to the advantage of local capitals (imperialism). Finally, it takes measures, sometimes undertaken through central banks, to protect against the dangers posed to the national economy by the sudden collapse of large firms or banks. It is this function of the state (“bailouts”) which has taken centre stage in the wake of the 2008 financial crash.
Often it can seem as though capitalism works purely through the working out of abstract laws. But these abstractions only make sense if we pay attention to how they manifest themselves in the real world.
Companies have concrete ways of bringing together labour power and means of production, of raising funds and organising the distribution of their commodities. Capital isn’t just money – it is usually invested in factories, skilled workers, machinery and so on which are located in a specific place and cannot always be easily (or cheaply) moved. Each capital is embedded within networks of production and distribution that give it its specific character and bring it into close relationships with other capitals and the state.
Now let’s take a look at the relationship between states and capitals in the current economic crisis. This crisis began in the banks and it seems plausible to many that what we are witnessing is a financial crisis, rather than a crisis of capitalism as a whole.
Banks at the heart of the system
Banks are at the heart of Marx’s critique of capitalism. That’s because finance is essential to capitalism. Profit, the lifeblood of capitalism, is generated through production – it is the result of the gap between workers’ wages and the larger value they produce. But realising this profit through the sale of goods workers produce is not always easy. Sometimes bosses will have plenty of money ready to invest but are unable to do so immediately; on another occasion they may be ready to invest but lack the funds. This is where banks step in. Like a thousand hearts, banks pump profit from where it cannot be immediately invested to where it can be. They do not produce profit themselves, but they are essential to its ongoing production. A capitalist with spare cash places it with the bank and receives a rate of interest, while a needy investor elsewhere pays interest to the bank to obtain a loan; the bank claims its share in the middle. Surplus value is spread around the system.
In practice things don’t run this smoothly. The trouble is that producing profit is not the same as realising it. Producing commodities doesn’t guarantee that they will be sold. As the current crisis has worsened, companies have accumulated huge cash piles instead of investing. The lack of demand in the economy has led them to conclude that fresh investments are unlikely to yield profit. Technology giant Apple’s cash pile reached 100 billion dollars this year. Eurozone corporations are estimated to be sitting on a combined 2 trillion euros.
States and central banks have taken an active role in trying to square this circle. They’ve pumped huge amounts of cash into the market in the form of cheap loans, quantitative easing (printing money) and bailouts. Concurrently, they have initiated huge austerity programmes – which are an attempt by the state to restore profitability by depressing workers’ wages and cutting back the parts of state expenditure that lift workers’ living standards, like schools and hospitals.
On the face of it, these cuts would seem to confirm the pattern of the last 30 years – the state retreating. This would be to underestimate the importance of the welfare state to capitalism. One of the state’s crucial jobs is to ensure the ongoing reproduction of labour power. Services like the NHS and university education have a positive impact on workers’ lives – but they also matter to companies, which require a relatively healthy and educated workforce, but naturally don’t want to pay for it, especially in a period of crisis.
In Britain this aspect of the state’s role is changing but not disappearing. The attacks on education, for example, are explicitly intended to make education fit the needs of business. Cuts are not primarily about saving the state money or reducing its role in the economy; they’re the method by which the state is trying to remould society to fit the needs of capital.
One of Margaret Thatcher’s cherished ambitions was to cut back the state’s ownership of industry and reduce state spending. When she was elected huge swathes of the British economy were in the hands of the state – gas, steel, coal, telecommunications, electricity, the railways and more. Her government, and every one that has followed, including New Labour, has pushed through privatisation and outsourced public services.
But Thatcher’s “revolution” was far shallower than is usually supposed. Public spending rose steadily under Thatcher’s government and has since continued to rise in real terms – from (in 2010-11 prices) £345 billion in 1979 to £706 billion in 2011 according to the Institute for Fiscal Studies. As a percentage of GDP public spending has fluctuated around economic crises (with spending on benefits rising during recessions). Today it stands at 46 percent, compared to 44 percent in 1979.
It’s true that the British state now has a much smaller role in actually running industry – but the state remains a very powerful actor in the economy. A minor spat broke out this May when the government demanded businesses work harder to lift the economy. Eric Pickles’s assertion that “government can’t create growth” met with a blunt response from the British Chambers of Commerce: “The government needs to recognise that it is a major customer, a maker of markets and the guardian of Britain’s infrastructure.”
In addition to being a “major customer”, the state remains critical for its role in setting labour regulations, offering tax breaks and subsidies, promoting mergers or protecting against hostile takeovers.
But despite the fact that all these indispensable tasks are performed for capitals by states, it’s often thought that the growth of multinational corporations has diminished the importance of home states, since multinationals can supposedly relocate on a whim.
In fact, figures from the United Nations’ Transnationality Index (TNI) indicate that major corporations remain deeply embedded within their countries of origin. The TNI estimates companies’ global reach by calculating what percentage of their assets, sales and employment are foreign based (based outside the company’s home country). Average TNI for the world’s largest transnational corporations was 63 percent in the 2010 report – meaning that even the biggest transnational companies do more than a third of their business in a single home country. Corporations based in big economies like the US and Germany, such as General Motors, IBM and Volkswagen, typically do even more of their business in their home country.
This doesn’t mean there hasn’t been a process of globalisation of capital, especially since the end of the Cold War – but companies’ desire to spread across the globe is always limited by the material costs of doing so. While money can be transferred at the click of a button, real capital, which is tied up in factories, skilled workers, supply chains and so on, cannot be so easily uprooted.
Cronies and crisis
Since the collapse of the Soviet Union we’ve seen the relationships between states and corporations grow closer and more personal – a process sometimes dubbed “crony capitalism”. The systematic transfer of wealth upwards in society in the West has renewed the need for companies to collude with state officials and politicians to ensure they benefit from restructuring in the economy. This has become especially noticeable as states have initiated widespread privatisation of industry. The bailouts have confirmed a pattern where states have helped companies break into new profitable areas, only to stump up the cash when such ventures fail – privatising profits and “socialising” losses.
Right wingers like to compare the messy state of capitalism today with an imagined smoothly functioning free market – a “pure” capitalism rather than the crony- and crisis-ridden reality. No such form of capitalism has ever existed. The complex meshing of different states and companies is not a deviation from the laws of capitalism, but an expression of them.
Both neoliberals and some Keynesians tend to suggest that the state and capitalism (or the “free market”) are basically separate. The market produces profit, prosperity and economic growth; the state from an external position then intervenes with regulation, taxation and, if necessary, fiscal stimulus. The political argument then boils down to the nature and extent of state intervention. Keynesians argue for more robust state interventions, while neoliberals insist that problems are caused by an overbearing state. The differences between these political arguments are often important – but they share a theoretical conception of the relationship between states and capitals.
This doesn’t match reality. States and capital together variously compete and cooperate, but always share a common interest in shoring up capitalism. Understanding this is important for those who want to unravel this destructive system.
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