This diary is actually composed of two parts. Today’s diary will address some history as to the basis of the social welfare states and social democracy and will explore the post-depression/post-war consensus (aka Consumer Capitalism). The second part will consider Neoliberalism and Globalisation and consider how we can address the concerted attack that we are currently facing in the advanced capitalist world.
I'd like to thank Cassiodorus and Richard Lyon for comments on earlier drafts of this diary. If you want to do a diary in this series contact Cassiodorus at: firstname.lastname@example.org or me as I am trying to help him.
One of the greatest victories of both social democracy and the creation of the social welfare state was the reduction of income inequality in advanced capitalist counties. One of its greatest failures was the destruction of international solidarity as so much of this was achieved by the continued exploitation of the 3rd world. The advanced capitalist world actually provided so much for its citizens. With the consolidation of the attack on the social welfare state what will be the future? Will the incomes of the majority of the advanced capitalist world be reduced absolutely or simply further stagnated (relatively reduced)? Will developing and 3rd world economies be allowed a limited rise to provide the effective demand needed by capitalist economies? So much of what will happen depends on the reaction of the majority in the advanced capitalist world; if the majority of Americans continue to believe that the system will protect them and not fight, then I fear that we will see ever-widening distribution of wealth and income. If we fight back and extend the fight to cover those in the 3rd world and developing countries, then we stand a chance to force those who make the decisions to yield in their attempt to impoverish those in the advanced capitalist world.
The wave of austerity programs throughout Europe is changing the nature of the post-depression/post-war (in Europe) settlement. Undercutting the social welfare state and the state/public sector (that has provided massive increases in the standards of living in advanced capitalist countries) means that the idea of stimulating effective demand both for domestic and international goods and services by covering the needs of the majority in the advanced capitalist world is shifting. Where it could be arguing that capitalism is essentially anarchic and that the manner in which the system operates produces unintended consequences, the deliberateness of the attack on the social welfare state by governments to provide impetus for capitalist investment and expansion in the face of a crisis manufactured by deregulation, makes one wonder if the welfare of the majority of citizens in the advanced capitalist world are to be the current sacrificial lamb to the needs of the system for the attempt to expand profitability.
Social Welfare State and the Mixed Economy:
Social Welfare State and Liberalism:
To begin with, for those that do not understand this, the social welfare state was created not to undercut the capitalist system, but rather to save it from itself. Facing threats from internal instability of the system and an organised group of socialists and communists that were fighting to significantly limit capitalist property relations and overturn it respectively, it became a matter of urgency to intervene to save the system from itself.
Keynes was a liberal; he loathed socialists and communists. From the point of view of liberal economists and policy makers writing at the time of the great depression, an unregulated capitalist system is an inherently unstable economic system. It is prone to booms and busts and other forms of economic cycles that invariably will create massive inequalities in income and wealth and persistent unemployment. While this may be fine from certain points of view (especially free-marketeers and those accustomed to looking at things from a short-term point of view), it does not cover the vast majority and that adds an additional impetus towards allowing for reform.
The abandonment of Say’s Law (production creates its own demand and/or savings determine investment) and the recognition of the importance of effective demand to the functioning of the capitalist economic system enabled a shift in discussion by both economists and policy makers. Instead of supply ensuring demand and savings being automatically invested, it was argued that actually it is demand and expected demand that determine investment, output, employment and economic growth (for further discussion on Say’s Law and theory of effective demand see: for those with economics background: http://www.dailykos.com/...; from an history of thought perspective http://www.dailykos.com/...).
The recognition of the obvious point that production of goods and services for profits requires someone to purchase said goods and services was treated as a revelation (although it was not completely new); if there is an underdeveloped domestic market with extremely low paid workers and high levels of unemployment and/or no international purchasers for these goods and services, growth becomes elusive (as an understatement). At the very least it is way below capacity, depending on how burnt out the planet is from the ravages of capitalist commerce. Essentially capitalism is a demand driven/constrained economic system.
The creation of the social welfare state in the advanced capitalist world did several interrelated things:
- it provided sufficient effective demand by providing not only jobs (in the state sector, publicly owned industries, and short-term direct government job creation) thereby providing income to those to spend on goods and services produced in the system;
- acknowledging that the system itself cannot and will not produce full employment of labour, it provided for the basic needs of those that the system would not cover and at the same time, this also provided additional effective demand for goods and services produced in the advanced capitalist world;
- regulations controlling the worst aspects of the system were laid in place to try and mitigate the booms and busts inherent to functioning of the system (they could not eliminate them as cycles of all sorts are inherent to the system, but they could mitigate their intensity and they could mitigate their effect on the majority).
Socialists, Social-Democracy and the Mixed Economy:
For the socialists in Europe (social democracy never had the influence or power in the US as it did in Europe), their aims differed from those of the liberals. Believing that socialism could be created through reforms (as opposed to the revolutionary perspective of the Third International, see R. Luxemburg’s Social Reform and Revolution which I think is still extremely relevant today for the debate, analysis and criticisms of the aims of the second international, http://www.marxists.org/...), their policies were meant to constrain the capitalist system while offering protections and some alternatives for the majority.
The majority of these policies were implemented in post-War Western Europe and were essentially limited in comparison to earlier socialists' arguments and were conducted in the context of the threat from the Communist movements in these countries and those in eastern and central europe. These policies restricted inequality between wealth and income that characterised the capitalist system, land reform
was undertaken in countries (e.g., Italy) where land was concentrated in the hands of former aristocrats and landowners. This was not only done to enable subsistence production, but also due to fears of communist takeover in the post-war period.
Public/state owned industrial sectors of production in water and energy (utilities) and transport were created. Their priorities would not be regulated by the notions of "efficiency and profitability" as it was deemed that the needs of the society rather than the needs of private producers were relevant; the obvious additional consideration was that these forms of enterprises function better as a monopoly rather than in the context of a competitive system to ensure provision of these resources. Additional nationalisations were undertaken when businesses or industries failed in the attempt to stave off an increase in the persistent unemployment inherent to the capitalist system. Offering alternatives to the power and instability of the capitalist economic system, while not the transformations envisaged by Kautsky and Bernstein, this system certainly provided increases in income for the majority and a rapid reconstruction in the post-war period.
The Third World
One important thing needs to be pointed out. While this applied to the advanced capitalist countries, the great improvement in the lives of ordinary people in these countries was not extended to those of the third world and developing economies. The cruellest practices of the system may have been stopped in the advanced capitalist world, but they continued apace in the 3rd world. Governments of advanced capitalist countries did everything they could to prevent the rise of left-wing and progressive populist movements in these countries and also prevented the spread of unionisation and labour laws including health and safety legislation protecting the majority of the population in these countries.
Initially, production (either capitalist or production for the capitalist market) in these countries was limited to raw materials and primary products to be used in further production in the advanced capitalist world. This left these countries very vulnerable to bumps originating in the advanced capitalist world. While in advanced capitalist countries, a deficiency in demand could be dealt with by lowering prices for final commodities and decreasing production, in third world countries (with limited labour law and trade unions), the decreased demand for primary goods essentially resulted in decreased wages and joblessness (see, Raul Prebisch who treats this as cyclical and Hans Singer who argued that it was systemic, http://en.wikipedia.org/...).
By the late 1950s-60s, the import-substitution and dependency theory arguments in were then incorporated into economic policy in Latin America, Egypt (under Nasser) and India. These theories and policies argued in favour of the development of the domestic markets (through enabling better wages and incomes, subsidies on necessary commodities such as staple crops, bread, water), provision of and internal economic development in these countries along more equitable lines (state owned industries, the nationalisation of natural resources formally owned and operated by foreign multinationals, subsidies to protect domestic infant industries against external competition, attempted formation of trading unions with other 3rd world countries, the development of industry in these countries that are no longer dependent on the advanced capitalist world for technology and fixed and circulating capital).
Needless to say, this provoked a strong reaction from not only the governments of the advanced capitalist countries (leading to several foreign military interventions and military take-overs), from right-wing economists in the advanced capitalist world (see e.g., Friedman’s role in the economic development in Chile under Pinochet This regime was regarded by Klein and by Kees van der Pijl as the test case for neoliberal economic regimes) and the deliberate recruitment of students from 3rd world countries to universities in the US ... again see Naomi Klein’s The Shock Doctrine), but also from extra-governmental agencies like the World Bank and the IMF. The attack from advanced capitalist governments and extra-governmental agencies to protect the interests of multinational companies was severe. This includes the support of dictatorships and oligarchic families that deliberately maintained and reinforced the status quo, forced privatisation, and the elimination of subsidies of all types in order to provide the funds needed for economic development under the guise of export-led growth or economic development.
... to be continued either next week as part of the anti-capitalist meet-up or separately under my own name depending on the needs of writers and contributors in this series