The nation state is once again proving its special usefulness as a vehicle for managing capitalist crisis. Partly, this follows from the renewal of Keynesian monetary and fiscal policies. Other key dimensions of state usefulness include its more direct provision of financial guarantees to private enterprises and its over-priced purchase of “toxic” assets (those that have suffered drastic losses) from their private owners. First, the state borrows vast sums to perform all those actions; then it “accommodates” the lenders who demand “proper guarantees” of the state’s ability to “service” (pay back with interest) its mounting debts. The state thus socializes the costs of capitalist crisis. It literally moves private debts and toxic assets off private capitalist balance sheets and thereby transforms them into financial obligations of all citizens. Little attention focuses on the fact that many of these lenders to the state are also among the chief beneficiaries of state crisis management policies. That is, they benefit twice: (1) as recipients of state largesse when it intervenes in the private economy, and (2) as recipients of interest and concessions from the state for lending it the money for that largesse. Given the huge corporate profits in the years building up to the crisis, it is remarkable to contemplate that corporations are being allowed to profit again from the state’s intervention to “manage” that crisis.
Not long ago, apologists of contemporary capitalism referred to the nation state as passé. Globalizing corporations was promoted as engines of efficiency far beyond what could be achieved within national boundaries. Nation states were obstacles to the prosperity that globalization would achieve, so their demise was good.
Not surprisingly these rosy assessments of capitalism’s prospects glossed over the problem of its inherent instability. They ignored the regularity of capitalism’s cycles punctuated by occasional severe and extended downturns. After all, from the 1970s to 2007, economists, politicians, and media pundits alike had been falling over one another to extol the benefits of capitalism’s private, deregulated globalization (greater efficiency, better distributed and therefore lower risks, etc.). Very few among them wanted to recall, let alone seriously estimate and integrate into analysis, the intrinsic, recurring instabilities of capitalism and their social costs. So they routinely and glibly demeaned and denigrated the state’s importance for the economy. As in the 1930s, now another grim downturn demonstrates the very useful roles that nation states can play for capitalism especially during crises.
With the global collapse of credit, trade, production, employment, and public finances unfolding since 2007, the typical scramble commenced over who would finally have to bear the burden of the immense social costs flowing from that collapse. Enter the usefulness of the nation state. The state’s “national debt” becomes everywhere the means to socialize the costs of private capitalism’s crisis. It becomes clearer by the day that it is the mass of the citizenry that is being positioned to bear most of those costs. “Belt-tightening everywhere,” as taxes are to rise and/or state-provided services are to fall so as to squeeze out the funds to satisfy lenders to the states.
Yet, mass resistance to the new “usefulness” of the state is also rising. Iceland’s people on March 7, 2010 voted against — by an overwhelming 90 percent — the latest proposals for them to cover one set of costs (incurred by Icelandic banks in their dealings with European and other banks) flowing from the global credit collapse. All those banks profited greatly from the boom and bubble before the collapse, partly by risky investments of their depositors’ money. Like so many, they had come to believe the image of a capitalism no longer subject to recurring cycles that were sometimes sharp, deep, and long-lasting. Thus, they were unprepared when the global capitalist crisis of 2007 hit. They had lost their depositors’ money.
In the Netherlands and the UK, governments decided that it was too dangerous to their capitalist economies to permit large losses in their citizens’ deposits in branches of the Icelandic banks. They quite wisely feared contagion of anxiety over the safety of deposits in all banks, which may result in further blows to their already crisis-ridden economies. So those governments stepped in to guarantee those deposits. They borrowed to cover the costs of doing so (much as they borrowed to cover most of the costs of their multiple interventions to save their capitalist economies). Then the UK and the Netherlands decided to demand compensation from the Icelandic banks for the costs of that borrowing. The Icelandic banks had no means to pay (their lack of means was, after all, what began this corner of the global crisis); they had also been nationalized to cope with the fallout in Iceland of their collapses. So the UK and the Netherlands set about the final step in this process. The British and Dutch governments demanded that the Icelandic nation state take from its entire people the funds to compensate them. They wanted thereby to reduce the amounts they are now trying to squeeze out of their own populations.
In tiny Iceland (population just over 300,000), the demands of the UK and the Netherlands work out to about $65,000 for each average Icelandic household plus interest. Iceland’s people said no. In Greece, unions and left political movements are similarly struggling against nationwide increases in value added taxes, wage freezes and pay cuts, and social service reductions. In California, tens of thousands of public service employees are losing their jobs, and protests are mounting. And much the same is happening elsewhere across the globe.
The nation state has become a useful vehicle indeed to shift the costs of capitalist instability as far as politically possible onto the mass of people. What other modern institution could perform this task half so well? In Europe, this intolerable subordination of the state to capitalist imperatives is widely recognized as such and resisted, sometimes in the name of fighting for socialism. In the US, the same process is largely seen as another government oppression and opposed in the name of fighting against “socialism.” The ideological frameworks differ, but the underlying realities do not. In both cases, the immediate focal point of contestation — the center stage — is the nation state. The capitalist system remains offstage, some steps behind the curtain. The latter escapes criticisms and oppositions at least for a while, perhaps long enough to hit and bounce back from a cyclical bottom. The notion of system change is virtually removed from discussions about the crisis.
Keynesian economics returned to respectability because of the capitalist collapse and leading capitalists’ enthusiastic endorsement of states’ economic rescue-missions (interventions into and controls over private enterprises and markets). The nation state will likewise win a new lease on life and renewed affirmation to the extent that it transfers the costs of capitalist collapse onto the people.
Rick Wolff is a Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York. He is the author of New Departures in Marxian Theory (Routledge, 2006) among many other publications. Check out Rick Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan, at www.capitalismhitsthefan.com. Visit Wolff’s Web site at www.rdwolff.com, and order a copy of his new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It.