The State, Class and the Recession (Routledge Revivals)

Stewart Clegg, Geoff Dow, Paul Boreham, Stewart Clegg, Geoff Dow, Paul Boreham

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781134716470
• Edition: 1
• Topic: Economics
• Subtopic: Economic Conditions
• Index: Economics

The contributions to this edited collection, first published in 1983, are based on two underlying themes. The first examines the major recession that took hold of the global economy during the 1980s and assesses its effects on key areas of social structure, including political and economic democracy and trade union representation. The second theme considers the limitations of state intervention in such changing circumstances, with particular reference to the welfare state. This is a comprehensive title, which is of great relevance to those with an interest in the current global economic situation and the potential impact of this on the welfare state and class structure.

Chapter One

POLITICS AND CRISIS: THE STATE OF THE RECESSION

Stewart Clegg, Geoff Dow and Paul Boreham

VARIETIES OF ANALYSIS

Understanding of the current recession requires preliminary analysis at at least two levels: the ‘new’ international division of production, and changes within domestic economies. Both have implications for class analysis. Capitalism, whether conceived as a world economy or as separate, interacting national economies, involves relationships between class groupings. During the current crisis these class relationships are in the process of being re-constituted. In consequence, state responses, major transformations in the degree and content of political control of the economy and the often ambiguous relations between capital and the state, become critical issues for the agenda of theoretical and empirical investigation.

Since the early 1970s the experience of economic crisis, in the form of simultaneous unemployment and inflation, has not only renewed enquiry from within the broad corpus of marxist social science and political economy, but also has stimulated other significant contributions. Germane to the current crisis has been the renewed theoretical critique of orthodox economic analysis that can be labelled ‘Post Keynesian’ or ‘Cambridge’ economics. This analysis draws upon older writings of Keynes, Sraffa and Kalecki, which were formulated during the ‘first crisis’ of economic theory and policy in the 1920s and 1930s (1). The focus of this renewed enquiry has drawn attention to the relation between economic downturns and changes in the class distribution of income; as well as to the pace of capital accumulation, the organisational strength of the working class and the ideological role of certain institutions of policy advice (2).

From within more recent traditions, interpretations of the global and national realignments of industrial production, state responses, social dislocation and political confusion have also burgeoned. Wallerstein discusses the realignment of the relationships between market economies and national boundaries in terms of the changing structural roles of states in the world economy (3); Mandel relates associated changes in state ‘management’ of the economy to ‘long wave’ fluctuations in the processes of capital accumulation (4); Gamble and Walton isolate apparent contradictions and inflationary consequences of state intervention (5); Urry seeks an explanation in changing relations between the state, social classes and social identities, social democracy and political parties (6); Stephens insists that in the most advanced capitalist states at least, a fundamental transition is occurring which will permanently alter organisational relations between capital and labour (7); while Holland argues that the crisis and its monetarist forms may give to labour movements an opportunity to assert democratic control over capitalist investment decisions and hence over the future pattern of capital accumulation and the impediments to its continuation (8). In all cases, political repercussions are postulated, and some transitional phase for the world economies is supposed. The transition, nonetheless, is one whose projection and resolution remain uncertain. The trajectory appears to be from a state of US economic hegemony, manifested by the post-1945 ‘age of growth’ and presumed political quiescence in the ‘core’ nations, to the current, concomitant decline into an ‘age of uncertainty’ (9).

This volume includes contributions to the emergent political and economic debates about the implications of this uncertainty for the social structure of the industrial capitalist part of the world economy. The contributions encompass an awareness of the diverse range of available analytical approaches. The issues involve two themes: firstly, the effects of the decline into capitalist recession on the structures of modern political and economic democracy; and secondly, the limits to the rationality of ‘social democratic’ or ‘labourist’ state interventions derived from Keynesian policies as strategies for maintaining these spheres of democracy in this ‘age of uncertainty’.

RECESSION AND CONFLICT

A common focus of neo-conservative assault on the welfare-statist consensus politics of the post-1945 years has been the so-called inability of Keynesian policy prescriptions to anticipate or to account for the existence of contemporary inflation. However, taken together, the work of Keynes and Kalecki has provided a forceful insight into that condition which has allegedly made the current recession different from its counterpart in the 1930s. Simultaneous unemployment and inflation was for some time considered a surprising, inexplicable and even paradoxical coincidence because it had been assumed that there was necessarily a ‘trade-off’ between the two. (A little unemployment will keep inflation down; high levels of inflation are a consequence of low levels of unemployment.) The appearance of inflation during recession was regarded as a sign of the inappropriateness of Keynesian demand-stimulation expansionary policies, and monetarist ‘explanations’ centring on the role of the money supply and (especially) government expenditure proliferated. Keynes, in fact, had realised that a long period of full employment would set in motion irremediable tendencies to inflation as workers’ bargaining power increased and as corporations, especially those unresponsive to competitive pressures, increased prices commensurately (10). Kalecki elaborated the argument by pointing out that in times of general economic downturn, large corporations, faced with declining turnovers may more than commensurately increase prices in response to cost (e.g. wage) increases so as to maintain overall cash flows and profitability. As the unit mark-up is increased in the noncompetitive sectors, an important stimulus to inflation is introduced, to which workers will, in subsequent rounds, respond in the form of further ‘catch-up’ wage claims. In this sense, inflation becomes the manifestation of a struggle between capital and labour to maintain their respective shares of the economic ‘cake’. The non-wage elements will be determined by the ability of capital to pass on costs more than commensurately, to stay in business; that is, inflationary price increases will depend on ‘the degree of monopoly’. In the competitive sector, declining turnover may well mean the demise of the enterprise; in the monopoly sector longevity is secured at the expense of inflation. In the contemporary era, organised labour is able to demand and frequently receive money wage increases despite the persistence of high levels of unemployment. In the 1930s not only real wages but sometimes even actual money wages were cut. Inflation is thus a reflection of class struggle. In times of recession, it is not a consequence of ‘too much money chasing too few goods’; it is a consequence of struggle over distributive shares. In times of boom, the underlying conflict was masked by continuing and increasing flows of income in absolute terms; once growth stopped the importance of the relative shares became apparent. Underlying conflicts have been sharpened by circumstance and have been the occasion for dramatic transformations in political conditions.

Both domestically and internationally, economic recession is the occasion for massive re-structuring of industrial production, and this has produced an intensification of class struggle and a transformation of class relationships. These are ongoing processes which generate new tensions within both parties and states. Early post-war commitments to permanent full employment have everywhere been abrogated as economic crisis has been used to facilitate the relocation and reconstitution of capitalist economic activity. The role of the state has become especially problematic. Contending forces attempt to use it to defend profits and productive prerogatives while others encourage state-sponsored constraints on the ongoing accumulation of capital. While the balance of forces lies with the abandonment of policies to produce or maintain full employment of people and industrial capacity, and the social consequences of this play themselves out in terms of a long term restructuring of national autonomies, the need for sustained consideration of the diversity of theoretical positions and political strategies becomes even more urgent.

At the time of the Great Depression, orthodox economic analysis held that long term unemployment was theoretically impossible, that freely competitive market economies tended towards full employment equilibrium and social harmony and that the self-regulatory nature of the system would render minimalist government the most appropriate form of economic and social administration. Keynes’ achievement was to show the internal inconsistencies in the orthodox arguments. There were no internal mechanisms guaranteeing that the decisions made by private capitalists with respect to investment would result in full employment of people and industrial capacity. What was privately profitable was not necessarily socially desirable or optimal; there could be stability with long term unemployment; there could be ‘under employment equilibrium’. To remedy this situation, Keynes advocated a permanent role for quite substantial government intervention into economic activity within a national economy. He argued that the mechanisms for equating private investment with public demand would need to be created by institutional intervention: ‘I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative’ (11). Clearly his intention was to save capitalism from radical attack by remedying some of its internal defects. However as Joan Robinson has repeatedly insisted since the 1930s, Keynes was himself to blame for the subsequent bastardisation of his ideas by failing to pursue the radical implications of his own observations (12).

Keynesian policies became the economics of ‘fine-tuning’ – regulation via fiscal policy and monetary policy. The call for a ‘somewhat comprehensive socialisation of investment’ was subordinated to the conception that intervention was unnecessary except in times of depression. Additionally, large scale deficit financing was shunned and a leading role for the public sector was confined to those aspects of corporate-government interlocking that eventually produced the ‘military-industrial complex’ and those cold and hot wars which from time to time justified it. Keynes was re-synthesised into the orthodoxy and the rise of ‘bastard Keynesianism’ in the 1950s and 1960s signalled a shift from the promise of post-war reconstruction to a more politically acceptable role for the state appropriate to the era of monopoly capitalism. ‘True’ Keynesianism was never applied and the threat it implicitly posed to vested interests, the potential it apparently had to permanently eliminate recessionary phases through political commitments to full employment, were never put to the test.

A formerly neglected aspect of the ‘Keynesian revolution’ was the contribution of the Polish economist Michal Kalecki (13). Kalecki’s theoretical and empirical enquiries (14) have since become a major focus of ‘post-Keynesian’ analysis. They pose a serious challenge to subsequent marxist accounts of the boom-recession cycle and of the role of the capitalist state which postulate a simple trade-off between wages and profits. Kalecki’s work, with Joan Robinson’s enunciation of it, has produced a fuller understanding of the business cycle than Keynesian ‘demand-management’ policies were able to contemplate. Five major conclusions emerge from this work.

(a) Kalecki suggested that once the principles of anti-cyclical economic policy were understood, once the awareness of how to avoid recession and to maintain full employment were accepted into the corpus of policymakers’ knowledge, a new, political, trade cycle would emerge in place of the traditional business cycle. Even though fluctuations in capitalists’ investment activities would produce concomitant fluctuations in employment levels, in patterns of economic activity, in incomes and in profits; and even though government intervention could theoretically alleviate these tendencies, this rarely became the preferred option. Instead, the western capitalist democracies entered the phase of ‘the political trade cycle’ whereby government expenditures, employment levels and economic activity generally were all increased prior to elections, while stringent conditions tended to be imposed and unemployment tended to rise immediately thereafter. According to Kalecki’s argument, neither business nor government favour permanent full employment. The threat of ‘the sack’ ceases to be a disciplinary device and workers collectively are able to assert a certain degree of militancy and political power, whether in the form of demands for increased wages or for more control over the conditions or content of production. Clearly, the implication is that if capital is faced with the choice between retaining profitability and retaining political control over the economy, it will opt for the latter and sacrifice profits. This is what happens whenever anti-recessionary strategies are shunned by the state. Economic policy thereby becomes a quite complex, even ambiguous arena of struggle within the capitalist state.

It is important to note of course that no degree of conscious agency is necessarily implied by this analysis. In so far as the philosophy of fiscal restraint, the doctrines of monetarism, and policies which purport to ‘fight inflation first’ exert a powerful, ideological influence within the institutions of the state and policy-formulation, they do so in a way which renders opaque, even to specifically ‘political’ agents, the most significant effects of their implementation. The experience of Labour Party responses to crisis in the past decade indicates that even formal opponents of such deflationary strategies will follow policies which appear to be a less than adequate representation of their own constituencies.

The political trade cycle theory accounts quite well for the post-war experience of western capitalism regardless of the political complexion of the parties in office. Clearly there are definite conditions under which the capitalist state will allow the rate of capital accumulation and associated profit levels to be unnecessarily constrained.

(b) Kalecki was also able to argue, on the basis of both empirical and theoretical analysis, that the share of total production accruing to capital and labour respectively was not constant but changed according to the stage of the trade cycle. In the early stages of a general downturn, the share accruing to labour can be shown to increase and the profit share to decrease, due not to enhanced bargaining strength of labour but to the external factors giving rise to the recession itself. The first indications of a recession are declines in turnover and hence in profitability; and it is only when capital begins to respond to these conditions by reconstitutin...