Austerity: His side is winning the class struggle
Hillel Ticktin examines the balance of forces and the quandary of the ruling class
To grasp the current stage of the downturn, it is necessary to discuss the theory underlying the situation itself.
First, to summarise what I have argued already, what we have at the present time, as a carry-over from the downturn break point, is a very high level of uninvested money being held in banks and financial institutions. Quite clearly, of course, if investment does not take place there cannot be an upturn - that is where we left our discussion last time.1
We have to now ask when, where and how the ruling class might change its mind about this refusal. Beyond that, we have to find the answer as to why it is doing this in the first place. The fact that this investment ‘boycott’ is actually happening is now obvious to everyone - although it was not quite so obvious at the beginning of the downturn, when the press did not pick up on it in the same way.
So why? There is no single viewpoint on this in the ranks of the ruling class itself. This is clear from the simple fact that there was a deadlock in the US Congress over the budget. On the one side, there was the Tea Party2 - supported by a number of extremely rich people - and, on the other side, a number of very rich liberals who clearly did not agree with what was going on - Warren Buffet, for example, who went as far as to say that there was a class struggle being waged and his side was winning.
Similarly, there was an interview in the Financial Times (November 15) by Henry Blodget who owns and edits an online economics/business journal called Business Insight - an influential and very useful publication, it must be said. He makes the point that “Right now, the biggest problem in the world economy is this tug-of-war between capital and labour. Capital is winning big time.”3 Someone who poses the problem like that - without any obfuscation - is normally a liberal. The usual attitude of the capitalist class is to uphold commodity fetishism - or commodity ‘obfuscation’, if you want to call it by another name. Blodget is putting the issue unambiguously. This is also a viewpoint that is held more widely by sections of the capitalist class.
What we have then is at least two strategies. One that implicitly says that concessions have to made, wages have to be raised, unemployment has to go down and the percentage of those employed has to go up. But exactly the opposite position is taken by the other major strand of opinion in the ruling class. This contends that a reserve army of labour must be maintained, with its necessary functions of controlling and disciplining the working class. Up to a point, this second approach has been pursued reasonably successfully - as implied in Blodget’s statement cited above.
So the question that concerns us is not whether either of these two policies is ‘right’ from the standpoint of the ruling class, but what is likely to happen. At the moment, all there seems to be is a muddle. What underlies this is the fact that the US today is a declining power and is not able to enforce its will in the global system of imperialism. This means that the flow and control of profits into the US are more limited and the future prospects are more problematic too.
This is a qualified point, of course. Half the profits on the New York stock exchange still come from outside the US, but the essential thing is that we are at a stage in capitalism where the hegemonic power is no longer able to impose its will as it used to and where its dominant form - financial capital - has imploded. The fact that there was a switch from industrial to finance capital from the late 70s onwards - in the Thatcher-Reagan period and later - is crucial to understanding this.
Financial capital was a form of control which now cannot be sustained in the old way. But, at the same time, there is no easy alternative. The ruling class could return to building up industrial capital - while it might maintain the production that now exists in China and elsewhere up to a point, it could also increase it in the US and other imperialist countries.
It is obvious that the world is not awash with the necessary products for the great majority of its population, and so there is tremendous untapped demand. However, the question is that of profit. Would it be profitable and in what way? This issue has been clearly posed. For instance, when Obama came to office he talked of high-speed rail - that is, a way of strengthening the US’s infrastructure. In fact, very little of this sort of thing has actually been done.
So the only thing we can say with certainty about the policy of the ruling class at this time is that it is extremely muddled. It has no obvious way out of this impasse. The ruling class switched to finance capital with the clear aim of disciplining and controlling the working class by running down industry in the developed countries, increasing unemployment - particularly marked in the case of Britain - and raising the rate of profit, a large part of which was then extracted from industry and passed to finance capital. As there was no desire to invest that profit in industry on a large scale - outside the third world, that is - an enormous surplus was generated, which was difficult to invest anywhere productively, and this produced a series of bubbles.
The final bubble was created when the ruling class opted for a cannibalistic form of finance capital, which necessarily imploded. Capitalism is therefore stuck with the only other realistic option, which is a return to industry. But that is an option the ruling class has rejected politically.
The result is an impasse. Financial capital cannot be used in the old way, but the ruling class is still stuck with it. There are constant attempts to regulate it because of its inherent dangers - a spectacular banking collapse, for instance. But the fact is that in the aftermath of the recent banking crisis, the banks have not been fully restored - this is true in the UK, France, Germany, Switzerland, etc.
You might have thought that the obvious policy would have been to restore the banks as quickly as possible. That could be achieved through nationalisation and heavy subsidies. Again, there has been a refusal to do that. It is surprising that the ruling class does not understand the real situation it is in. If it did, it would not keep complaining about the percentage of debt to GDP being too high and the ‘catastrophe’ that higher levels of debt would inevitably imply. This is simply not the case under conditions where the potential output is considerably higher than what exists at the present - there is a large amount of unused resources in the economy, in other words.
If you refuse to use those resources and instead print money, you can get an accelerating inflationary cycle. That is not the case at present, of course. However, the ruling class is simply not prepared to take the route of utilising those unused productive resources in the economy, so the danger remains.
Take the case of Britain. The government keeps complaining that the ratio of debt to GDP is too high - it has been far higher in the past, but that is totally ignored. The fact is that the Bank of England has been buying government bonds to the tune of £375 billion, which means that effectively the real debt ratio to GDP is a lot lower - perhaps up to 30% lower than it appears. It is quite possible to go further along the same route, but there is no political will to do so. The current orthodoxy says this must not happen.
Why on earth do they have such a stupid doctrine? It is clear that there are other sections of the ruling class that disagree with it - it is actually not working. The ruling class as a whole is simply muddling along. In the longer term, this is not a viable policy.
This observation is connected to the next point: how long can the existing policy of austerity continue? If you actually think of it as a means of restoring a reserve army of labour and identify commodity fetishism as a form of control necessary to continuing capitalist rule, then the policy makes some sort of sense. It is - as Warren Buffet and Henry Blodget say - a form of class struggle. The ruling class is imposing its will and trying to return the world to the 19th century.
However, this only makes sense in the abstract. The idea that one could reimpose a reserve army of labour, without the necessary welfare benefits, together with the ameliorating effects of other concessions in the economy, which effectively blunt the effects of that reserve army, and that one could effectively destroy the unions, really does not make sense. The left has generally been critical of the trade unions and their tendency to compromise. However, the unions are now under attack. Looked at from the point of view of a liberal ruling class - the word ‘liberal’ is not used here in a complimentary way, of course - this is not really rational.
The ruling class needs allies in the wider population. It needs institutional allies like the trade unions and their bureaucracies. If the trade unions are increasingly antagonised and attempts are made to smash them as organisations, which is happening in various parts of the world, the result will be a loss of those institutional forms of control, the failure of the reimposition of commodity fetishism. It is impossible to reimpose the direct rule of money, of profits without any limits.
Although austerity may have looked attractive for capitalism at one stage, given time, it can only fragment. Fully implemented, it would so antagonise and embitter the general population that the section of the ruling class supporting this police regime would have to find itself an island in the Pacific in order to survive.
Austerity has achieved some successes for the ruling class. However, in the medium to long run it is hopeless. This is why there is a muddle and we are seeing retreats already. The ruling class wants a compromise - but it is not clear what that compromise could be or with whom it needs to be reached. It is therefore in trouble and without a clear way out of the crisis.
(This is an edited version of a podcast available on the Critique website: www.critiquejournal.net/audio/ current-stage-crisis-2013/2_ Why-the-refusal-to-invest.mp3.)
1. ‘Capital’s labour of Sisyphus’ Weekly Worker November 28.
2. ‘An enraged Frankenstein’s monster’ Weekly Worker October 24.
3. Financial Times November 15.