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Reclaiming the State
A Progressive Vision of Sovereignty for a Post-Neoliberal World
William Mitchell, Thomas Fazi
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eBook - ePub
Reclaiming the State
A Progressive Vision of Sovereignty for a Post-Neoliberal World
William Mitchell, Thomas Fazi
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About This Book
The crisis of the neoliberal order has resuscitated a political idea widely believed to be consigned to the dustbin of history. Brexit, the election of Donald Trump, and the neo-nationalist, anti-globalisation and anti-establishment backlash engulfing the West all involve a yearning for a relic of the past: national sovereignty. In response to these challenging times, economist William Mitchell and political theorist Thomas Fazi reconceptualise the nation state as a vehicle for progressive change. They show how despite the ravages of neoliberalism, the state still contains resources for democratic control of a nation's economy and finances. The populist turn provides an opening to develop an ambitious but feasible left political strategy. Reclaiming the State offers an urgent, provocative and prescient political analysis of our current predicament, and lays out a comprehensive strategy for revitalising progressive economics in the 21st century.
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PART I
The Great Transformation Redux: From Keynesianism to Neoliberalism â and Beyond
1
Broken Paradise:
A Critical Assessment of the Keynesian âFull Employmentâ Era
THE IDEALIST VIEW: KEYNESIANISM AS THE VICTORY OF ONE IDEOLOGY OVER ANOTHER
Looking back on the 30-year-long economic expansion that followed World War II, Adam Przeworski and Michael Wallerstein concluded that âby most criteria of economic progress the Keynesian era was a successâ.1 It is hard to disagree: throughout the West, from the mid-1940s until the early 1970s, countries enjoyed lower levels of unemployment, greater economic stability and higher levels of economic growth than ever before. That stability, particularly in the US, also rested on a strong financial regulatory framework: on the widespread provision of deposit insurance to stop bank runs; strict regulation of the financial system, including the separation of commercial banking from investment banking; and extensive capital controls to reduce currency volatility. These domestic and international restrictions âkept financial excesses and bubbles under control for over a quarter of a centuryâ.2 Wages and living standards rose, and â especially in Europe â a variety of policies and institutions for welfare and social protection (also known as the âwelfare stateâ) were created, including sustained investment in universally available social services such as education and health. Few people would deny that this was, indeed, a âgolden ageâ for capitalism.
However, when it comes to explaining what made this exceptional period possible and why it came to an end, theories abound. Most contemporary Keynesians subscribe to a quasi-idealist view of history â that is, one that stresses the central role of ideas and ideals in human history. This is perhaps unsurprising, considering that Keynes himself famously noted: âPractical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.â3
According to this view, the social and economic achievements of the post-war period are largely attributable to the revolution in economic thinking spearheaded by the British economist John Maynard Keynes. Throughout the 1920s and 1930s, Keynes overturned the old classical (neoclassical) paradigm, rooted in the doctrine of laissez-faire (âlet it beâ) free-market capitalism, which held that markets are fundamentally self-regulating. The understanding was that the economy, if left to its own devices â that is, with the government intervening as little as possible â would automatically generate stability and full employment, as long as workers were flexible in their wage demands. The Great Depression of the 1930s that followed the stock market crash of 1929 â where minimal financial regulation, little-understood financial products and overindebted households and banks all conspired to create a huge speculative bubble which, when it burst, brought the US financial system crashing down, and with it the entire global economy â clearly challenged traditional laissez-faire economic theories.
This bolstered Keynesâ argument â spelled out at length in his masterpiece, The General Theory of Employment, Interest, and Money, published in 1936 â that aggregate spending determined the overall level of economic activity, and that inadequate aggregate spending could lead to prolonged periods of high unemployment (what he called âunderemployment equilibriumâ). Thus, he advocated the use of debt-based expansionary fiscal and monetary measures and a strict regulatory framework to counter capitalismâs tendency towards financial crises and disequilibrium, and to mitigate the adverse effects of economic recessions and depressions, first and foremost by creating jobs that the private sector was unable or unwilling to provide. The bottom line of Keynesâ argument was that the government always has the ability to determine the overall level of spending and employment in the economy. In other words, full employment was a realistic goal that could be pursued at all times.
Yet politicians were slow to catch on. When the speculative bubbles in both Europe and the United States burst in the aftermath of the Wall Street crash of 1929, various countries (to varying degrees, and more or less willingly) turned to austerity as a perceived âcureâ for the excesses of the previous decade. In the United States, president Herbert Hoover, a year after the crash, declared that âeconomic depression cannot be cured by legislative action or executive pronouncementsâ and that âeconomic wounds must be healed by the action of the cells of the economic body â the producers and consumers themselvesâ.4 At first Hoover and his officials downplayed the stock market crash, claiming that the economic slump would be only temporary. When the situation did not improve, Hoover advocated a strict laissez-faire policy, dictating that the federal government should not interfere with the economy but rather let the economy right itself. He counselled that âevery individual should sustain faith and courageâ and âeach should maintain self-relianceâ.5 Even though Hoover supported a doubling of government expenditure on public works projects, he also firmly believed in the need for a balanced budget. As Nouriel Roubini and Stephen Mihm observe, Hoover âwanted to reconcile contradictory aims: to cultivate self-reliance, to provide government help in a time of crisis, and to maintain fiscal discipline. This was impossible.â6 In fact, it is widely agreed that Hooverâs inaction was responsible for the worsening of the Great Depression.
If the United Statesâ reaction under Hoover can be described as âtoo little, too lateâ, Europeâs reaction in the late 1920s and early 1930s actively contributed to the downward spiral of the Great Depression, setting the stage for World War II. Austerity was the dominant response of European governments during the early years of the Great Depression. The political consequences are well known. Anti-systemic parties gained strength all across the continent, most notably in Germany. While 24 European regimes had been democratic in 1920, the number was down to eleven in 1939.7 Various historians and economists see the rise of Hitler as a direct consequence of the austerity policies indirectly imposed on Germany by its creditors following the economic crash of the late 1920s. Ewald Nowotny, the current head of Austriaâs national bank, stated that it was precisely âthe single-minded concentration on austerity policyâ in the 1930s that âled to mass unemployment, a breakdown of democratic systems and, at the end, to the catastrophe of Nazismâ.8 Historian Steven Bryan agrees: âDuring the 1920s and 1930s it was precisely the refusal to acknowledge the social and political consequences of austerity that helped bring about not only the depression, but also the authoritarian governments of the 1930s.â9
The 1930s were characterised by an opposite trend: the rise of so-called state capitalism, a concept that was first developed by Lenin and Bukharin in relation to the increased state involvement in capitalist accumulation that had begun in the 1880s. Essentially, in response to the failure of private capital to recover from the post-crash slump, all the major European states started extending their control or ownership over key national industries such as coal, steel, transport and electricity generation. The rise of state capitalism was accompanied by a drastic decline in cross-border intra-European trade and transactions, as each national state-industrial complex âattempted to undertake as wide a range as possible of economic and military functions within its own boundariesâ.10 Military competition increasingly took the place of economic competition: âThe interpenetration of national capitals and the national state finds expression in an important change in the way in which capitalist competition itself takes place. It is increasingly regulated within national boundaries, while assuming the form of military, as well as (or even instead of) market competition internationally.â11
As Europe descended into chaos, the United States, under the newly elected president Franklin D. Roosevelt, chose to tackle the Great Depression in a radically different way. By 1933, when Roosevelt was elected president, the crisis had wrought havoc and destruction across the United States. Roosevelt, unlike his predecessor Hoover â whose apathy and inaction had earned him the nickname of âdo-nothing presidentâ â understood the need to act swiftly and decisively. More importantly, he understood the root cause of the Great Depression: out-of-control financial capitalism, which called for radical reforms of the US financial system. In a legislative flurry known as âthe 100 daysâ, Roosevelt forced through more radical reforms in three months that Hoover had done in four years, with some of the laws being proposed, discussed and voted on in a single day. As the French economist Pierre Larrouturou writes, Rooseveltâs âaim was not to âreassure the marketsâ, but to rein them inâ.12 The laws and regulative agencies created by Roosevelt to ârein in the marketsâ included the GlassâSteagall Act of 1933, which separated commercial and investment banking; the Securities Act of 1933, which regulated the securities market; and the setting-up of the Securities and Exchange Commission. Furthermore, Roosevelt understood that financial reform, although necessary, was not enough: he also did away with Hooverâs let-the-markets-sort-themselves-out approach, and implemented a huge government stimulus plan to kick-start the economy, known as the New Deal, during which the government funded countless public projects and social programmes, including Social Security. It included 24,000 miles of sewer lines, 480 airports, 78,000 bridges, 780 hospitals, 572,000 miles of highway, and upwards of 15,000 schools, court houses and other public buildings.13
Even though Rooseveltâs New Deal was partly inspired by Keynesâ writings, the British economistâs argument was won not so much by Rooseveltâs historical New Deal but by World War II, which was a sharp practical lesson in Keynesianism, as Keynesâ colleague at Cambridge, Joan Robinson, wrote.14 According to the idealist narrative, the military conflict showed the traumatised elites of the Western world, as well as the swelling and increasingly powerful ranks of unionised workers, that large-scale government spending could bring an economy to full employment very quickly when private spending declined, and could thus be used to avoid a repetition of the deadly 1930s mixture of high unemployment, austerity, national aggression and beggar-thy-neighbour policies. Keynesianism (or better, as we shall see, the âbastardisedâ15 version of Keynesâ approach that came to be known as neo-Keynesianism) thus emerged from the war as the most popular school of economic theory in the Western world, heralding the so-called Fordist-Keynesian era of macroeconomic policy.
Though the precise institutional forms of the Fordist-Keynesian model differed from one country to another, depending primarily on the political context in which they were introduced, in general terms this period was marked by the heavy use of public spending to supplement private spending â and more generally by the systematic and pervasive involvement of the state in the economy â with the aim of maintaining full employment, on the basis of a class compromise between labour and capital. This included âthe regulation of the reproduction of the working class through the wage [system], social insurance and social security, on the basis of a generalised expectation of rising wagesâ.16 On capitalâs behalf, this meant âacceptingâ that â[t]he state could focus on full employment, economic growth and the welfare of its citizens, and that state power should be freely deployed alongside of, or if necessary, intervening in or substituting for market processes to achieve these endsâ.17
According to the idealist narrative, this model started to crumble in the 1970s under the weight of the so-called neoliberal counter-revolution: an ideological war on Keynesianism waged by a new generation of die-hard free-market economists, led by the anti-Keynesian par excellence of the second half of the twentieth century, Milton Friedman. Ultimately, the idealist narrative rests on a fundamental faith in the power of ideas to shape the world, and thus views the shift from the Keynesian to the neoliberal era largely as the victory of one ideology over another, rather than the result of changes in the inner functioning of the global economic system. Implicit in such an idea- and agent-centred worldview is the understanding that at any given time there are always, potentially, different varieties of capitalism to choose from.
THE REGULATION VIEW:
KEYNESIANISM AS A CAPITALIST REGIME OF ACCUMULATION
An alternative explanation of the Keynesian era is the one put forward by the so-called regulation theory school, a Marxist-influenced approach to radical political economy that emerged in the late 1960s. The regulation theory school was a reaction to orthodox Marxist theories that offered a simple and direct explanation of historical change in terms of a âlaw of accumulationâ. Regulationists countered that there is a multiplicity of social forces operating in modern history alongside capital â working-class resistance, environmental change, race, patriarchy, gender, culture, etc. â that cannot be explained simply as functions of capitalismâs inner logic. In the founding work of regulation theory, French economist Michel Aglietta set out his goal of giving âa theoretical foundation to the periodization of capitalism into successive stages of historical evolutionâ.18 According to regulation theory, capitalism develops across its history through a series of discontinuous stages. Each distinctive stage of capitalist development is based on an industrial paradigm (mass production, for example), which in turn gives rise to a regime of accumulation or pattern of growth (a pattern of production and consumption which allows for capital accumulation). Accumulation regimes are periods of relatively settled economic growth and profit across a nation or region. These periods of capital accumulation are underpinned, or stabilised, by a mode of regulation: a plethora of laws, institutions, customs and hegemonies, both national and international, that create the environment for long-run capitalist profit and facilitate the reproduction of a particular accumulation regime. Such regimes eventually become exhausted, falling into crisis, and are torn down as capitalism seeks to remake itself and return to a period of profit. However, the construction of a new regime of accumulation cannot be accomplished solely through the market. As Simon Clarke noted, it is the state, on the basis of the outcome of the inevitable class struggl...