Greece, Again: Demystifying “National Debt”

Yet again, business leaders, politicians, academics, and media are blowing smoke around Greece’s efforts to cope with “national debt” problems.  Something far more important for the world than this small country’s financial travails is at stake.  Indeed, what is at stake affects us all.  What is happening in Greece parallels developments everywhere; only details and timing vary.

The struggles in Greece begin with the complex relationship among workers, employers, and the state.  Workers and employers are locked into the endless, multi-layered struggles of capitalism (workers vs. employers over wages and working conditions, workers competing for jobs, and capitalists competing against one another for profits).  One object of these struggles is the state: varying combinations of workers and employers press the state to (a) serve their interests rather than others’, and (b) shift the cost of doing so onto the others.

Struggle over the state includes the state’s debt: the accumulated borrowing by the state that remains to be repaid.  Employers want the state to secure the flows and prices of their inputs and likewise of their marketed outputs.  They press the state to protect, subsidize, and otherwise support their profit-making enterprises (by means of costly military apparatuses, public education of their workforces, suitable infrastructures, etc.).  Employers also seek to “socialize” the costs of these expensive state programs and institutions: to shift as much as possible of their costs onto their workers.  Of course, workers can fight back, demanding government programs for their benefits and trying to shift the costs of state programs onto employers and the wealthiest recipients of corporate wealth (their highest paid managers, professionals, etc.).  Struggles over the state among different groups of workers and among different groups of employers are also significant but are not taken up here.

Often the political organization, mobilization, and financial resources of the employers’ side prevail: the state then serves the employers’ program while taxing mostly the workers.  However, where the latter are well organized and mobilized, the state cannot so directly do the employers’ bidding.  Enter the national debt, an indirect way for the state to serve the employers at the expense of the workers.  In this case, the state largely serves the employers while not taxing them the full cost of doing so.  Moreover, the state likewise does not tax the workers to pay for the remaining costs of the state’s employer-focused programs.  Indeed, to gain workers’ support, the state may not tax workers for the full costs of state programs benefiting them either.

With too few taxes flowing to the state from employers and workers to finance its programs for both of them, the state must borrow the difference between tax revenues and programs’ costs.  By borrowing, the state escapes, at least temporarily, the dilemmas of its position within capitalism’s class struggles.  It postpones the day of reckoning until it can no longer borrow its way out of those dilemmas.  Now, the global crisis of capitalism has brought Greece that day of reckoning, just a little sooner than everywhere else.

When the state borrows, its loans come overwhelmingly from the class of employers and their richest beneficiaries (highest paid managers, professionals, etc.).  The state thus saves that class from a tax burden, borrows that money instead, and thus must repay such loans back to that class with interest.  State borrowing may likewise relieve the working class from paying more taxes now to cover state programs.  However, because workers can and do lend very little to the state, workers cannot look forward to state interest payments and principal repayments as the employers can.  Instead, workers can look forward to demands that they help the state make such payments to the employer class.

The modern national debt is a normal routine of contemporary capitalism.  Its politically neutral-sounding name disguises its actual function as an indirect means to tilt state activities toward employers and against employees.  Because capitalism’s economic crises usually provoke ballooning state borrowing, they can readily morph into state crises.  This happens when state borrowing confronts limits imposed by their lenders’ unwillingness to take further risks.

Greece was, of course, drawn into this latest global capitalist crisis — the worst since the Great Depression of the 1930s.  Workers and capitalists have been struggling harder to make the state, among other social institutions, solve their own economic problems while simultaneously shifting those solutions’ costs onto others.  Programs to bail out banks and capitalist corporations compete against programs to support employment, wages, etc.  States everywhere seek to postpone the basic economic and social issue of who pays for state activities: they all try to borrow still more.

However, the accumulated national debts of many countries and the sizes of their new crisis-induced borrowing have raised the risks to lenders.  The normal routine of the national debts stalls.  Lenders today remember what happened, for example, when Argentine capitalism collapsed early in the decade: when the dust settled in 2005, owners of Argentina’s state debt lost two thirds of the value of their loans.  There was no global economic crisis then.  In today’s conditions, lenders to states have much more to worry about.

Today, the employer class is anxious that its long-successful use of national debts to avoid taxes is in difficulty.  The risks of that indirect way to manipulate states into serving its class needs while charging the working classes have risen sharply.  Employers now reckon that states must restore their credit worthiness first, before new lending can resume.  And the way for states to do so — in the employers’ view — is to levy more taxes on the working classes and/or cut state programs serving those classes.  The alternative, taxing employers and the rich while cutting state supports for them, is largely omitted from public discussion.

That is the meaning and content of today’s Greek debt crisis and tomorrow’s parallel crises in Ireland, Spain, and Portugal and future crises in most other capitalist economies.  In each case, particular conditions and past histories will shape the specifics.  Most important, the political organization and mobilization of the working classes will shape how far (and perhaps whether) those crises get resolved at the workers’ expense.

Richard D. 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 Richard D. Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan, at  Visit Wolff’s Web site at, and order a copy of his new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It.

| Print