Actually, it’s the system, President Obama
illustration by Galen Johnson
Global capitalism’s deterioration is fast outrunning the disorganized, uncoordinated patchwork of too-little-too-late government “programs.” Nothing illustrates this sorry spectacle better than the twists and turns of U.S. monetary policy to be executed by the Federal Reserve, and Congress’s just-passed “stimulus” program, about to be enacted by the Obama administration.
These policies and programs are trapped in an ideological fog that basically cannot question private enterprise and markets even as they spiral into disaster. Theirs is the hesitant superficiality of Keynesian economics: temporary government intervention to “overcome market imperfections” and thereby to revive the efficiency and growth their dogma attributes to private-enterprise capitalism. As that system’s second Great Depression in 75 years hits, its leaders remain blind to the core of the system and its contribution to recurring crises.
At the capitalist system’s core lies its central conflict: On one side, corporate boards of directors pursue ever more surplus extracted from productive workers. On the other side, workers seek ever more wages and benefits and better working conditions, which reduce the surplus available to employers. Perpetual class conflict results between capitalists and workers over the size of that surplus. The conflict’s form varies from hidden to open, from mild to violent.
Why Capitalism Can’t Be Stable
Boards of directors continually find ways to reduce wages. Yet they complain when consumers, their wages falling, cannot then buy all the commodities that capitalists need to sell to them. Indeed, insufficient consumption often contributes to causing or worsening a recession. The contradiction here is one that many capitalists seem unable to see, let alone trace to the class structure of capitalist production and its resulting conflict.
Workers continually seek to improve their incomes, benefits, and job conditions. Yet they confront employers who respond by outsourcing jobs to cheaper or more subservient workers or by eliminating jobs through automation, even at the cost of jeopardizing commodity sales to workers, leading to or worsening recessions. The contradiction here — workers who achieve gains risk losing their jobs — underlies another of capitalism’s systemic conflicts. As discussed further below, were workers to become their own collective boards of directors, they would not likely reduce wages or outsource jobs. Workers appropriating their own surpluses would accompany automation with serious job retraining and transitional support to displaced workers — rarely done when capitalist boards of directors automate. Conflict between corporate directors and productive workers helped to produce both the wage stagnation of the last 25 years and the resulting surplus bubble that swelled and then burst in 2008. Class conflict has always contributed to capitalism’s systemic instability. Figure 1 (image 2 at top of page), prepared by the Center on Budget and Policy Priorities, records the many post-1945 U.S. recessions. Capitalism’s instability was a constant, even though national politics and culture changed repeatedly after 1945 as the Cold War flared and ebbed. Capitalism’s class structure kept hammering its rhythm of boom-and-bust cycles into our lives.
Each recession since 1948 cost millions of lost jobs that hurt the workers involved, their families, neighbours and communities (and their employers). Large portions of productive capacity (machines, equipment, offices, stores) were idled: output worth billions that might have been produced never was because of recession. Had that output been produced and used to alleviate social problems (poverty, homelessness, inadequate childcare, deteriorated infrastructure, etc.), we would today be living in a very different country. Recessions always cut revenues for local, state and federal governments, forcing reductions in public education, health care, and so on. Recurring instability mocks as well as invalidates all that noise about “capitalist efficiency.”
Who To Blame?
It would be reasonable to identify, investigate and publicly discuss every possible cause of such instability. But a taboo blocks consideration of one such cause, namely capitalism’s class structure. Instead, many faulted the politicians (blaming Democrats or Republicans), unions, or big business. Others focused on human weaknesses (“greed,” “irresponsible” borrowing, etc.). Still others blamed inadequate state “regulation” of private business. With most analyses blind to class structure as a cause, changes in the class structure of production rarely figured in proposed solutions for capitalist instability.
The policies actually debated are all variations of U.S. state responses to the 1930s Great Depression and Japanese state interventions in its long, post-1990 recession. Proposed state actions in today’s global recession include “bailouts” of selected industries (especially finance); (re)regulations of enterprises and markets; central bank reductions in interest rates and expansions of money supplies; and federal tax cuts and “stimulus” spending. Such interventions sometimes helped the U.S. through past recessions. But they never solved the basic problem of recurring recessions.
The new Obama administration’s plans exemplify the hope that another severe capitalist downturn can be weathered and survived without the level of mass suffering and mass political movement that might put the core of the production system on the agenda for change. Thus, the Federal Reserve begins 2009 busily pumping still more money into the economy to buy “toxic assets” (the once-celebrated “financial innovations that spread risk”) and common stock from banks teetering on the edge of collapse. It plans additional spending beyond the $150 billion already allocated to cover the insurance policies written on those toxic assets by the world’s largest insurance company, American International Group (which the U.S. government already nationalized). It is caught up in an immense bailout of a bankrupt financial system. Yet, no Obama Administration official questions how and why the basic structure of production, distribution and credit generated that bankruptcy. Nor is anything said about changing that basic structure to prevent future crises or recover from this one.
Too Little, Too Late
Likewise, the budget that Obama delivered to Congress at the end of February, 2009, is classic Keynesian deficit spending writ large. The planned deficits in the federal budget this year and next approach $3 trillion. No doubt such federal spending will offset the massive reductions in spending in the private sector as millions in the U.S. become unemployed, U.S. export markets shrink and, therefore, enterprises in the U.S. cut back. Obama officials admit that the scope and pace of private economic decline may require even greater stimulus within the year. In short, the stimulus is already too late to stop massive social costs, and it looks likely to be too little.
Yet other problems with the Keynesian stimulus mantra lurk just behind the Obama Administration’s absurdly optimistic prognoses. The stimulus deficits mean the government will have to borrow trillions — but from whom and at what cost? Lenders may not provide so much to the U.S., given that other governments must borrow to cover their deficits, too; the crisis has reduced lenders’ funds; and the biggest recent lenders (China, for example) may not willingly absorb much more. If they do, they may demand higher interest rates, which would worsen economic conditions and raise the cost of government deficits. Huge, new U.S. deficits financed by debt would mean that future U.S. taxes would go increasingly to paying interest on that debt (rather than providing services to taxpayers). These negative aspects and implications of Obama’s Keyensianism never appear in official statements or mainstream media.
Considering Radical, Structural Responses
Moreover, facing the magnitude of the crisis and the problems with warmed-over Keynesianism might reinforce a turn toward more radical responses. These would include, for example, making the U.S. government the employer of last resort (in addition to its current role as banker or insurer of last resort). Much as Roosevelt turned to direct government employment in the 1930s when the private sector could not provide jobs to millions, Obama could do likewise. Similarly, if the housing market is dragging the rest of the economy down, one could consider the nationalization of housing (and not just the financial industries) to solve the problem. Yet even these sorts of responses still miss the roots of the problem of recurring capitalist crises.
Repeatedly, severe recessions bring state interventions and regulations to help capitalists survive capitalism’s convulsions. Once the immediate economic crisis has passed, capitalists proceed to undo state interventions again. So long as capitalists appropriate surpluses, they always use them to evade, weaken, or destroy state interventions that constrain them. Meanwhile they try to keep public debate and policy away from systemic solutions to recurring recessions. Class struggles not only contribute to capitalism’s crises, they are also central to how those are “managed.”
And so, capitalist cycles recur. Each economic cycle imposes huge, painful social costs. In a parallel ideological cycle, most politicians, mass media and academics swing ridiculously between hyped celebrations of deregulation and (re)regulation as “the solution to our economic problems.” Capitalism’s instability is systemic. To address it without considering systemic change is to continue the history of failure to “solve” that instability. Capitalism’s core class conflict between workers and boards of directors was never fundamentally changed by state bailouts, (re)regulations, or monetary and fiscal policies. Capitalism’s class structure is likewise not systemically changed, even if we replace boards of directors privately elected by shareholders with boards of state officials instead. State capitalism (U.S.S.R.), too — and not only private capitalism (U.S.A.) — displayed instabilities driven by class conflicts between surplus producers and appropriators. Notwithstanding differences between the instabilities of state and private capitalism, both still yielded inefficiencies and wastes that each so assiduously documented in the other.
One possible systemic change eliminates capitalist class conflict by reorganizing enterprises to position productive workers as their own collective boards of directors, thereby removing one key cause of capitalist instability. Such post-capitalist boards’ decisions (about technical change, capital accumulation, wages, and so forth) would differ markedly from capitalist boards’ decisions. Post-capitalist boards of directors would differ from capitalist boards in their relations to the state as well. A systemically post-capitalist economy would have its instability problems, but they too would differ from capitalism’s. The point is not that this systemic change is the only one that could (or could alone) seriously address capitalism’s instability. The goal, here, is to expose the widespread — and politically self-defeating — refusal, even on the Left, to acknowledge such systemic causes. The Centre and the Right will forever debate and oscillate between non-systemic causes and policies (bailouts, regulations, stimuli, etc.). The Left’s unique contribution could and should be to insist that systemic solutions — like a changed class structure of enterprises — form part of public discussion and public policy.