From golden age to age of austerity
Trump’s trade war with China and Brexit poses major challenges to globalised capital, argues Yassamine Mather. This article is based on a recent talk given to Cambridge University Persian Society.
Before we deal with president Donald Trump’s daily tweets about the United States’ share of the costs of organisations such as Nato, it is important to summarise how most of these international institutions came into existence and to describe their role in maintaining the hegemonic power of the United States over the last few decades.
We have to look at the historic context and I will start with the political and economic situation immediately after the end of World War II - in other words, the start of the United States’ global hegemony. If we look at the period immediately after the defeat of Germany and Japan and the reconstruction of post-war Europe, it is an era of Keynesian capitalist economics, the Marshall Plan for reconstruction, as well as military expenditure related to the cold war. These factors are all important in creating the conditions for economic growth. It is a period aptly named by Thomas Piketty (author of Capital in the 21st century) as the post-war “golden age”. International organisations that came into existence in this period have one important role, to strengthen the position of the new hegemon, the United States.
Nato was created in 1949 by the United States, Canada and several western European nations to provide ‘collective security’ against the Soviet Union. Its main role, of course, as ‘leader of the free world’ was to secure US interests and that is why America’s contribution to its budget is higher than other countries.
Almost a decade later the European Economic Community was created by the 1957 Treaty of Rome, with strong backing from the US. Successive presidents encouraged the United Kingdom to join - which it did after a long period of debate and initial scepticism, along with Ireland and Denmark, on January 1 1973.
The period after World War II marked the end of the British empire, but after the austerity of the 1940s there was a period of relative prosperity for the advanced capitalist countries. This is the era of social democratic policies, reform and the creation of the welfare state. The working class was demanding better wages and conditions and an end to unemployment, and in Britain healthcare was introduced.
But there was a shortage of workers and the state encouraged immigration from its former colonies in Asia, Africa and the Caribbean. Both Labour and Conservative governments largely implemented Keynesian policies and, under pressure from the working class, imposed new regulations on business. This is also a period which saw the nationalisation of major industries.
However, as always with capitalism, the boom did not last long. By the 1970s western economies were facing a slowdown in economic growth, and unemployment was rising. But it was different from previous recessions - economists talked of ‘stagflation’, where high unemployment and high inflation existed simultaneously. This is also the period of mass strikes for better wages, as the rate of inflation soared. Capitalists and Conservatives complained about the power of the trade unions and the economic policies that had dominated the post-war era were ended.
Politically the late 1960s and early 1970s saw rebellion in the ‘third world’, the defeat of the US in Vietnam, the Portuguese revolution and the emergence of a radical left opposed to the reformist. ‘Peaceful coexistence’ was advocated by the Soviet Union and its satellites. International capital was less confident and the US establishment was increasingly troubled by the world situation and the situation of its European allies. Ideologues of the right were now stressing the advantages of the free-market economy, and by the mid-1970s they had major allies in the US and UK ruling classes.
Milton Friedman, was an economic advisor to Ronald Reagan and Margaret Thatcher. He condemned Keynesian economics and held up the virtues of the laws and supply and demand. The free market would create prosperity by reducing the role of the state. Neoliberalism and laissez-faire economics demanded an end to non-market pressures on prices and wages, such as those from ‘discriminatory’ taxes, subsidies and tariffs, and to the ‘undue regulation’ of private enterprise. A largely unregulated capitalism would also embody the ideals of ‘free individual choice’, as well as delivering optimal performance with respect to economic growth, efficiency and technical advance. The state’s role was to be restricted within the economic arena to defining property rights, enforcing legal contracts and regulating the money supply.
At the same time there was an insistence by industrial capital that wages had to be controlled. It demanded the deregulation of business, the privatisation of public assets, cutbacks in social welfare programmes and a reduction of taxes on businesses and the investing class. In the international sphere, neoliberalism called for the free movement of goods, services and capital across national boundaries.
Alan Greenspan, chair of the US Federal Reserve from 1987 to 2006, was a major advocate of this ‘new ideology’. While neoliberal capital was and remains a slippery, shifting concept, we can, however, list a number of consistent trends in its global operations during this time.
There was large-scale closure of major industries in advanced capitalist countries, with production transferred to wherever labour was cheaper. Textile factories moved to Egypt, Turkey, then India and Asia. Industrial production went to China, Vietnam and nowadays Africa - all in constant pursuit of maximum exploitation through lower and lower wages.
This globalised world economic order needed its own rules and regulations: privatisation, casualisation and contract work became the norm. These policies were devised to stop solidarity amongst workers, to reduce the power of trade unions, but also to make workers completely dependent on their employers and vulnerable in times of high unemployment.
International institutions were the enforcers of these policies on a global scale - the International Monetary Fund and World Bank amongst them. The IMF made it clear to ‘third world’ countries that development loans could only be granted on the basis of abiding by all its neoliberal rules. The declared aim of the IMF, which encompasses 189 countries, is “to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world”. In reality the idea was to shore up the domination of the international economy and reassert corporate control. The term ‘structural adjustment’, taught and revered worldwide, had clear implications: privatisation of state-owned industries, the selling-off of state assets, deregulation …
The World Bank was founded to address what are today called ‘imperfections’ in international capital markets. Its founders claimed that borrowing would stimulate economic growth - something which in an era of economic uncertainty hardly happened.
Every now and then we heard of emerging economies - Asian tigers, Ireland, Brics, etc - which were about to catch up with those of the west. Financial journals and leading economists sang their praises with unbounded optimism. But a series of economic crises and burst bubbles marked this period. To name a few, there was:
- ‘Black Monday’ (1987) in the United States
- The crisis of US savings and loans associations from 1986 to 1995.
- The 1997 Asian financial crisis
- The dot-com bubble (2000-02)
- The 2007-09 financial crisis
- The US subprime mortgage crisis (2007-10)
- The housing bubble and housing market ‘correction’ (2003-11)
- The automotive industry crisis of 2008-10, also in the US
UK and Europe
Thatcher - the prime minister who coined the phrase, “There is no alternative” - presided over the decimation of major industries. Mines and docks were closed, and the steel industry became a shadow of its former self, while unemployment shot up to levels not seen since the great depression.
The British economy faced two major recessions under Thatcher, but even during the intervening boom the country’s GDP did not grow by more than a couple of percentage points. One of her legacies was the destruction of mining communities - most have not recovered since - and another was the sale of council houses: a policy that has contributed to the ever increasing number of homeless people. House prices went up, but at the same time interest rates soared to record highs, while repossessions rose to frightening levels. Trade union membership fell dramatically, from 13.2 million in the 1970s to 9.8 million by 1990 and just 7.4 million in 2008-09.
According to the Institute For Fiscal Studies, in 1979 13.4% of the population were surviving on less than 60% of median income before housing costs. By 1990, the figure had gone up to 22.2% - or 12.2 million people - with further huge rises in the mid-1990s.1
Finance capital has always been an important component of British capital, but since the 1980s, when capital controls were removed and the banking system was deregulated, the UK’s finance sector has trebled in size. By 2007, the assets of the UK’s banking sector were five times the size of GDP. This was considered a major success for many years until the financial crisis of 2007-08, when it became clear that, thanks to speculation as well as ‘irresponsible lending’, this situation was becoming a liability.
Following a number of variations, the Treaty on the Functioning of the European Union (also referred to as the Treaty of Rome) became one of two treaties forming the constitutional basis of the European Union, based on free movement of goods, services, labour and capital. As a consequence of this, freedom of movement and residence for persons in the EU became the cornerstone of citizenship, confirmed by the Treaty of Maastricht in 1992.
However, beyond the borders of the European Union, global capital has imposed very strict measures regarding the movement of labour. The impoverishment of the southern hemisphere, the collapse of the Soviet bloc, rising levels of education in the ‘third world’ at a time of mass unemployment, war in the Middle East and Africa - have all led to mass immigration from the impoverished south to Europe, as well as the US and other advanced capitalist countries.
All this coincided with major changes in the nature of work in those advanced countries. In the absence of full employment, as major industries closed, as skilled workers became redundant, many - particularly women - were forced into temporary, part-time jobs. But such ‘economic independence’ created resentment amongst conservative sections of society, as did the arrival of foreign workers and multiculturalism. Rightwing papers were fuelling hatred of the new perceived ‘sexual equality’ and political correctness was constantly ridiculed. However, until 2008, because of the relatively stable economic situation, there was an acceptance of the status quo.
But the financial crisis of 2007-08 was probably the most serious since the 1930s. It started with the collapse of the subprime mortgage market in the United States, and developed into a full-blown international banking crisis, following the collapse of the investment bank, Lehman Brothers, in September 2008. No doubt the fact that most banks had adopted policies resulting in excessive risk-taking helped to magnify the impact of the crisis globally.
It was not just a cyclical crisis, as in previous decades: it was also a systemic crisis. In some circles this was referred to as a crisis of aspects of capitalism: the banking system, finance capital, globalisation. However, the reality is that it was an expression of the failure of neoliberalism - the subordination of capital as a whole to the needs of finance capital.
In the aftermath, the major capitalist states engaged in massive bail-outs of banks and financial institutions. All manner of monetary and fiscal policies were employed to prevent a possible collapse of the world financial system. Despite all these efforts, however, the crisis was followed by a global economic downturn. The impact on the Asian markets was severe, while in Europe we saw the debt crisis, followed by the euro crisis, which affected the banking system in major European countries.
Capitalism has in the past used imperialism, war and the welfare state to successfully mediate its contradictions, yet the spectacular events of August-October 2008, in which the ruling class appeared to believe that there was a real possibility that the system could go into meltdown, have altered our times forever. Measures which restricted the scale of capitalist crisis in the post-war period have reached their limits.
The extraction of surplus value itself establishes control over labour-power, both physically and ideologically. Force is only necessary at times of extreme crisis, when the system is directly threatened.
The commodity itself stands over the unit of production and so over the worker. In turn, commodity fetishism, with its derivative, money, becomes the all-consuming goal of production. Those who abandon the fetish of the commodity are marginalised in society. Capital at one and the same time needs to exploit the worker to the full, yet also needs to make use of the worker’s humanity in order to ensure the necessarily skills, with quality of production, and innovation, as well as continuity. In other words, abstract labour stands in contradiction to concrete labour. With the increase in the complexity and depth of capital, incentive becomes more important. Capital, therefore, has to be both inhuman and humane.
For the workers, the imposition of machine-like controls compels them to find a mode of opposition and resistance. In short, commodity fetishism controls the worker, but the progress of capitalism itself undermines it. It undermines it through both the formation of economic and political opposition movements and the need for socio-economic controls over capital itself, in order to ensure its progress and stability. At the present time, the nationalisation, regulation and subsidisation of finance capital make it clear that inequality of control and wealth are socially determined, so strengthening the argument that control from below is both possible and necessary.
The second feature of capitalism which establishes control over the worker is the reserve army of labour. In a truly atomised workforce, the worker has little or no bargaining power, given the existence of large numbers of others who are unemployed and seeking work. Wages will be held down as a result.
Capitalism needs growth to increase demand. However, it wants to achieve this without increasing wages, without state intervention, without increased taxation on the rich. The dilemma facing private enterprise is that it cannot grow when there is nowhere to invest profitably and without taking risks. That is why we get overaccumulation and underconsumption.
Limited industrial growth has had a series of corollaries - increasing unemployment, rising government expenditure on welfare and growing budget deficits. In addition finance capital is short-termist in its drive to extract maximum profits and by its nature unproductive of value.
The failure of a neoliberalism (in other words, a turn to finance capital) to resolve the cycle of capitalist boom and bust has long term-implications. As Critique’s founding editor, Hillel Ticktin, puts it,
There is a huge surplus of capital unable to find investment outlets, leading to asset inflation and the various bubbles. The downturn itself reduces that surplus, both in monetary and physical terms providing the basis for an upturn. However, the underlying basis for the surplus of capital remains. That reflects the contemporary ruling class strategy of turning to finance capital. However, that too is in crisis and is in the process of being controlled and curtailed.
A new strategy is needed, because capitalism-as-a-system is in crisis, but none is available. Governments and big business/the capitalist class can control the level of investment to a considerable degree - in part through nationalisations and through monopoly control over firms - and they are not prepared to reflate to the point of full employment. Their initial reaction has been pragmatic - assuming that muddling through will work. However, that has been succeeded by demands for massive reductions in the public sector and a squeeze on the standard of living. If successful, which is highly unlikely, it will amount to a period of extreme reaction, and popular defeat, lasting a generation.2
There are a number of factors making the current situation worse. First and foremost, we have the growing gap between the rich and the poor. According to the 2019 Oxfam report, the poorest half of the population has been losing wealth (around 11%), at the very same time as a new billionaire is minted every two days. According to PolitiFact, the top 400 richest Americans “have more wealth than half of all Americans combined”.3 At a time of global economic uncertainty, we see overaccumulation of capital and underconsumption, paving the way for yet another crisis.
For many decades, the middle class acted as a stabiliser, imposing authority and discipline on the working class, as well as playing an important ideological role in defence of the existing order. Yet now the middle classes are being squeezed worldwide, the majority being proletarianised, while a small minority join the higher echelons of fund managers, CEOs, etc.
There are additional political factors making the situation worse. The elite, the ruling classes have become even more arrogant than in the past. They take their privileged position for granted and openly mock the working classes.
They claim to have embraced multiculturalism and are not racist towards the elite of other nations, so why can’t you workers do the same? Of course, the reality is that the international neoliberal elite is happy with multiculturalism and gender equality, as long as it is limited to their own class. It is the racial diversity of the lower classes that they do not like (fortunately for them they do not come across it that often in a personal sense). At the same time small capital, rural farmers, the disenfranchised working class, the unemployed are bombarded daily with scare stories about immigrants taking up jobs and imposing their culture …
For these people the post-2008 era has brought with it austerity, universal credit, casual work and job insecurity. The rightwing press keeps telling them it is all the fault of migrants and the European Union. No wonder Brexit became popular.
Both Trump in the US and rightwing Brexiteers in the UK promise us a golden era achieved by isolation and protectionism. The problem is that so far such policies - exemplified by Trump’s pursuit of the US national interest in what remains a global economy - have failed abysmally. New tariffs, or their threat, have made the situation worse.
The Chinese economy was already slowing down, but additional tariffs have reduced the purchasing power of the Chinese middle class - with immediate, direct effect on British workers, such as those made redundant by Jaguar Land Rover.
Jobs have not returned to the US, for the simple reason that labour costs make such a move madness. Instead medium-size businesses which import goods from China are facing bankruptcy - they had already signed contracts for goods at pre-tariff prices, and now they will lose considerable sums. Trump’s economic policies have widened US trade deficits by more than forecast to a five-month high, as imports have surged to the greatest extent since 2015. One study indicates a 45% chance of a global recession in the coming 12 months.4
With the continuing crisis of finance capital, the absence of a major war (as opposed to the current limited regional conflicts), as austerity continues, there is one alternative - to repeat the policies of the post-war era and go for growth. However, given the experience of the 1960s and 1970s, capital knows that such policies would be just too dangerous if it wants to avoid working class militancy.