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The “fixing capitalism” headfake

Originally published: Naked Capitalism (December 11, 2019)  

It’s not hard to see why young people are embracing socialism. It isn’t simply that they can see a probable grim future under capitalism as they know it: more and more low-wage, high surveillance jobs versus more budget and psychological stress as most also have higher fixed costs (rentier housing costs, student loan payments, even more “asset lite, rent heavy” systems, ever-escalating health care costs). And that’s before getting to the need for war-level mobilization to address climate change.

The officialdom has been shaken out of its Versailles 1788-level complacency by much-derided “populist” revolts, and more recently, 1848-like revolts, including a general strike in France.

It has been revealing, and not in a good way, to see people who ought to know better serve up tepid reform programs. They seem to have forgotten the lesson of Karl Polanyi’s The Great Transformation, that the operation of a market society was destructive to society because it commodified people (labor) and what we would now call the environment (natural resources). The result is more material wealth along side more social breakdown such as births out of wedlock, poor care for the elderly, shallow personal and community ties, and a rapidly accelerating climate/pollution/garbage crisis.

Polanyi looked at the period from 1815 to the start of what was then called The Great War. He found that reformers who opposed the socially destructive aspects of capitalism did not stop the march of the extension of the market economy into more and more aspects of life, but that they merely threw some sand in the gears.

But the coercive nature of capitalism has only gotten more intense in the neoliberal era as social safety nets have been gutted. As we pointed out in 2013:

One issue I’ve long been bothered by is the libertarian fixation on the state as the source of coercive power. The strong form version is that the state is the only party with coercive power (and please don’t try denying that a lot of libertarians say that; there are plenty of examples in comments in past posts). Libertarians widely, if not universally, depict markets and commerce as less or even non-coercive.

What is remarkable is how we’ve blinded ourselves to the coercive element of our own system. From Robert Heilbroner in Behind the Veil of Economics:

This negative form of power contrasts sharply with with that of the privileged elites in precapitalist social formations. In these imperial kingdoms or feudal holdings, disciplinary power is exercised by the direct use or display of coercive power. The social power of capital is of a different kind….The capitalist may deny others access to his resources, but he may not force them to work with him. Clearly, such power requires circumstances that make the withholding of access of critical consequence. These circumstances can only arise if the general populace is unable to secure a living unless it can gain access to privately owned resources or wealth…

The organization of production is generally regarded as a wholly “economic” activity, ignoring the political function served by the wage-labor relationships in lieu of baliffs and senechals. In a like fashion, the discharge of political authority is regarded as essentially separable from the operation of the economic realm, ignoring the provision of the legal, military, and material contributions without which the private sphere could not function properly or even exist. In this way, the presence of the two realms, each responsible for part of the activities necessary for the maintenance of the social formation, not only gives capitalism a structure entirely different from that of any precapitalist society, but also establishes the basis for a problem that uniquely preoccupies capitalism, namely, the appropriate role of the state vis-a-vis the sphere of production and distribution.

What struck me about Heilbroner’s discussion, as if he was tip-toeing around the issue, and it was not clear whether because he could not formulate a crisp description of the power relationships, or that it was clear to him but he really didn’t want to come out and say what he saw.

Ian Welsh ventures where Heilbroner hesitated to go:

The fundamental idea of our current regime is one that most people have forgotten, because it is associated with Marx, and one must not talk about even the things Marx got right, because the USSR went bad. It is that we are wage laborers. We work for other people, we don’t control the means of production. Absent a job, we live in poverty. Sure, there are some exceptions, but they are exceptions. We are impelled, as it were, by Marx’s whip of hunger. It took a lot of work to set up this system, as Polanyi notes in his book “the Great Transformation”, but now that it has happened, it is invisible to us.

The desperation and indignity of the capitalist system is due to its exploitative nature. Yes, subsistence farming is often desperate if you have bad growing conditions or live on marginal land. But recall that before the enclosure of the English commons, the typical English peasant could work for a few hours a day, including occasionally having to make things like roughhewn shoes, and could faff around the rest of the time.

I don’t mean to single out Martin Wolf of the Financial Times, but an earlier this week, How to reform today’s rigged capitalism, was like Hamlet without the Prince. It followed up on an earlier article, which focused on what he saw as the causes of rising inequality: falling productivity growth, stagnating innovation, rising debt levels and finanicization, concentrated corporate power, which in turn fosters rentierism and tax evasion.

Notice what was missing? The fall in labor organization and bargaining power. The deliberate and successful attack on a muscular and effective state. It may seem hard to believe, but as recently as the 1960s, people went into public service not for the revolving door opportunities but to make a difference and in senior positions, for the prestige.

Needless to say, resetting the balance of power between workers and capital, by improving labor rights and strengthening social safety nets, is barely to be found on Wolf’s list of fixes. It’s another form of trickle-down economics. Make markets work better and the little guy will benefit. From his article:

My September analysis of “rigged capitalism” concluded that “we need a dynamic capitalist economy that gives everybody a justified belief that they can share in the benefits. What we increasingly seem to have instead is an unstable rentier capitalism, weakened competition, feeble productivity growth, high inequality and, not coincidentally, an increasingly degraded democracy.” So what is to be done?

The answer is not to overthrow the market economy, undo globalisation or halt technological change. It is to do what has been done many times in the past: reform capitalism….

First, competition…

Second, finance….

Third, the corporation. The limited liability joint stock corporation was a great invention, but it is also a highly privileged entity…

Fourth, inequality. As Aristotle warned, beyond a certain point, in­equality is corrosive. It makes politics far more fractious, undermines social mobility; weakens aggregate demand and slows economic growth. Heather Boushey’s Unbound spells all this out in convincing detail. To tackle it will require a combination of policies: proactive competition policy; attacks on tax avoidance and evasion; a fairer sharing of the tax burden than in many democracies today; more spending on education, especially for the very young; and active labour market policies, combined with decent minimum wages and tax credits. The U.S. has poor labour force participation of prime-aged adults, despite unregulated labour markets and a minimal welfare state. It is possible to have far better outcomes…

Finally, our democracies need refurbishing. Probably, the most important concerns are over the role of money in politics and the way the media works. Money buys politicians.

In other words, the main approach is to try to level the playing field more in markets, with some addition policies to address inequality more directly. But they are still way short of giving power more directly to the lower orders, either though better labor rights (the vagueness of “active labour market policies” leave me unconvinced that Wolf is out for more influential unions; it sound more like cracking down on Amazon warehouse sweatshops) and more direct provision of government services so that workers are less desperate when they go out to seek employment.

Contrast Wolf’s remedies, which are at best necessary but far from sufficient, with pre-fascist Germany and Italy. I’m citing these examples not to recommend the particular programs but to illustrate how far the needle has moved to favor capital. This is from a must-read article that I have also flagged in Links today, The Economy of Evil:

Before the rise of Fascism, both Italy and Germany had a robust social safety net and public services. In Italy, the trains were nationalized, and they ran on time while serving rural villages in 1861. The telecom industry was nationalized in 1901. Phone lines and public telephone services were universally available. In 1908, the life insurance industry was nationalized. For the first time, even poor Italians could ensure that their family could be taken care of if they died a premature death.

Between 1919 and 1921, Italy went through a time of worker liberation that has been dubbed as Bienno Rosso. Italian workers had formed factory co-ops where they shared the profits. Large landlords were replaced by cooperative farming. Workers received many concessions: higher wages, fewer hours, and safer workplace conditions.

Similarly, in Germany, Otto von Bismarck nationalized healthcare, making it available to all Germans in 1871. Bismarck also provided old-age pensions as public social security. Under Otto Von Bismarck, child labor was abolished, as well as providing public schools to all children. Germany inherited a national railway system from the Prussian empire. Germany’s Social Democratic Party grew strong during 1890s. In response, the Kaiser implemented worker protection laws in 1890. After World War I, the Social Democrats’ influence was strong. Germany had an active union membership. This created a robust safety net: “Decree on Collective Agreements, Worker and Employees Committees and the Settlement of Labor disputes” allowed for collective bargaining, legal enforcement of labor contracts as well as social security for disabled veterans, widows, and dependents. In 1918, unemployment benefits were given to all workers in Germany.

The author describes how Mussolini set out as a matter of policy to shrink government, privatize public services, revoke rent controls and government protection in rural areas. Hitler later engages in massive privatization of government services, deregulation (including revoking the power of government to set minimum wages and workplace conditions), elimination of social services, and destruction of unions, including sending union leaders to death camps.

What is disconcerting about this history is that neolibealism looks like slow motion fascism. As the author points out:

Fascism isn’t the merger of corporations and government that is too vague, and too easy to confuse. Fascism is government functions being replaced by private corporations. Fascism is when the public good is replaced by private profit.

In other words, the real battle over capitalism is over making the pursuit of profits the driver of society. We may be too far beyond an event horizon with our environmental meltdown to make the needed changes soon enough. But the end state, whether you call it a rebooted social democracy, some form of socialism, or emasculated capitalism needs to have workers and the government as strong enough actors to leash and collar businessmen.

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