Scottish-born economist - Angus Deaton - recently published his new book - An Immigrant Economist…
I was having a talk with a friend in San Francisco last Monday about globalisation and the capacity of the state, which is the topic of the upcoming book I am working on (manuscript due around May 2015). He made the comment that globalisation had meant that the state can now only do bad and can no longer do good. I asked him whether he was talking about globalisation (the international nature of finance and supply chains) or neo-liberalism (free market economics) and he said “neo-liberalism is a disease – that is the problem and since the 1970s it has meant the state is restricted to doing bad”. The point I was digging at was that progressives often conflates the two concepts which then leads to flawed conclusions about what the state can and cannot do. Further, when he talked about the state doing bad he was really talking about the impact on the average person and those who are disadvantaged. He wasn’t talking about the so-called top-end-of-town, which have without any question done very well since the 1970s. And that is my next point – the state hasn’t gone way or been rendered impotent by neo-liberalism as many on the Left believe and angst over. As the currency issuer it is still very powerful. It just serves the interests of a different cohort now relative to the cohort it served during the full employment period that followed the Second World War. In doing so, it has shifted from being a mediator of class conflict to serving the interests of capital in its battle to appropriate ever increasing shares of real income from labour. That is a wholly different narrative to the one that emerges when globalisation is conflated with neo-liberalism – as if they are parts of the same process.
The series so far:
Some of the themes in this blog were introduced into the second-listed blog series above. The blogs in these series should be considered working notes rather than self-contained topics. Ultimately, they will be edited into the final manuscript of the book.
The research I have been doing in the last few days continues the theme that globalisation has not rendered the nation state impotent. The thesis, as outlined in the introduction, is that the nation state has just changed its role and now uses its power to advance more narrow interests than previously.
In the Northern Spring of 1995, the official journal of the American Academy of Arts and Sciences, Daedalus, published a special edition on the theme of – What Future for the State? (Vol. 124, No. 2, Spring, 1995).
One article in this special edition – The New World Order, Incorporated:The Rise of Business and the Decline of the Nation-State – (pages 75-106) – which has proven influential since, was written by American international relations academic Vivien Schmidt, who ironically, given the tenor of her argument, has a position at an American university which is part of the European Jean Monnet program funded by several European ‘nation’ states.
The link to the article is to the JSTOR archive and you can download it from there only if your library allows you access.
Schmidt (p.75) says that “Capital has become increasingly mobile on business increasingly international as borders that act as barriers to trade for and as regulations are constrained, is a lifted”.
She mentions a range of multilateral agreements such as the General Agreement on Tariffs and Trade (GATT) as facilitating this increased liberalisation of business.
She also says that:
It has also resulted from the political and economic reforms internal to nation-states, such as privatization, deregulation, and decentralization, which of diminished central governments’ powers at the same time that they have freed business even more.
As a result, she argues that there has been “a weakening of the nation-state overall, in particular of the voice of the people through legislatures and nonbusiness, societal interests.”
First, we see here the classic conflation of two separable evolutions.
On one hand, she describes a world where capital (which should be taken to mean financial capital not productive machinery and equipment) is now more mobile and there has been an increased integration of world trade.
On the other hand, she mixes these trends with specific policy positions taken by governments over the last 30 to 40 years as if they have facilitated the increased global nature of international capital flows.
There is also a crucial difference between globalisation (by which I mean the growth of transnational corporations and international supply chains) and the neo-liberal ideology (by which I mean the dominance of free market economics, the demonisation of government intervention, the demands to eliminate the welfare state and the widespread deregulation of financial and labour markets).
Those two developments are separable and distinct although the latter certainly reinforces the threats imposed on nation states by the former.
My view is that the ‘Left’ has conflated the two developments and falsely concludes that globalisation is tantamount to the demise of the nation-state. It isn’t.
What has led to the change in the way the nation-state behaves is the imposition of the neo-liberal ideology. That historical shift was a matter of choice. It is a fashion or flavour that can change with human will.
Democracies can choose whether to allow the nation-state, by which I mean the currency-issuing government, to use its capacities in many different ways and to serve any number of competing interests.
In the full employment era, it was obvious that the state acted as a mediator in the conflict over the distribution of national income between labour and capital. The assumption was that without regulative oversight, safety nets (welfare states), and direct public employment, capitalism would be too unstable to deliver sustained improvements in material living standards.
However, that role began to change in the mid-1970s, as the ‘free market’ ideology started to seep out of the academic halls into broader society. This was an explicit, and, as we now understand, well-funded campaign in the service of capital.
What we now term neo-liberalism is not a new invention. Prior to the Great Depression, it was the dominant economic paradigm. Its rejection at that time reflected its catastrophic failure to deal with the Depression and the emergence of a new way of thinking about the role of the state and the macroeconomy.
In the Anglo world, that new way of thinking was marked by the publication of John Maynard Keynes’s ‘The General Theory’, which categorically showed the logical errors in the ‘liberal’ approach in relation to how the real monetary system operated.
Classical liberalism was dumped as a viable policy-setting framework because it failed. We learned during that time that capitalism could easily go awry and the consequences were highly destructive.
When I talk of neo-liberalism, I am referring to a specific body of economic theory and a set of policy prescriptions that flow from that economic theory.
US academic David Kotz wrote in 2002 that:
Neoliberal theory claims that a largely unregulated capitalist system (a “free market economy”) not only embodies the ideal of free individual choice but also achieves optimum economic performance with respect to efficiency, economic growth, technical progress, and distributional justice. The state is assigned a very limited economic role: defining property rights, enforcing contracts, and regulating the money supply.1 State intervention to correct market failures is viewed with suspicion, on the ground that such intervention is likely to create more problems than it solves.
The policy recommendations of neoliberalism are concerned mainly with dismantling what remains of the regulationist welfare state. These recommendations include deregulation of business; privatization of public activities and assets; elimination of, or cutbacks in, social welfare programs; and reduction of taxes on businesses and the investing class. In the international sphere, neoliberalism calls for free movement of goods, services, capital, and money (but not people) across national boundaries.
[Reference: Kotz, D.M. (2002) ‘Globalization and Neoliberalism’, Rethinking Marxism, 12(2), 64-79].
You can see a close correspondence between the neo-liberal policy recommendations outlined by David Kotz and the facilitating factors proposed by Vivian Schmidt.
But these policy recommendations are choices made by the political system they are not inevitable nor can any corporation force a polity to adopt these policies.
These policies have become dominant because capital has conducted an extremely well orchestrated and well-funded campaign, using its concentration of power in the media, its lobbying capacities to exploit the greed of corruptible politicians, and its ability to ‘buy’ academic support.
The general population lives in smoke haze of half-truths, misperceptions and outright lies, all driven by some fear of loss that is whipped up daily in the media as part of the above campaign.
Citizens continually support policies that make them worse off even when the politicians, in the ‘pay’ of the interests of capital, tell them they will be better off. These cumulative episodes of promise and failure have increasingly led to the refinement of the TINA (There Is No Alternative) strategy. In other words, the people have to sacrifice in order that the economy becomes ‘well’ again.
What made it ‘sick’ is another question. When Margaret Thatcher’s first tranche of policy attacks on the state welfare system and workers in general had rather obvious negative outcomes, the claim was that they hadn’t implemented Monetarism enough.
As each state company was sold off all regulation relaxed, the same argument kept being made – there is more to do. In other words for the last 3 to 4 decades, the neo-liberals have been ‘cleaning up the mess’ that they inherited. The story should wear thin but it doesn’t, such is the skill of the propaganda campaign.
Thus, signing up to these so-called ‘free trade agreements’ and creating tax havens for TNCs and deregulating labour markets to allow the TNCs to increase their profit rates at the expense of the local population reflected a policy choice made by the state to favour capital.
There was nothing inevitable about that at all and it was not dictated by the increased global nature of production and supply.
If the Communitarian sentiment that prevailed after the Second World War had not have been corrupted by the monied interests of capital, states could have rejected the demands by corporations, for example, to have so-called ‘investor-state dispute settlement’ mechanisms included in these agreements and governments could have insisted on the priority of the national laws.
As an aside, one should not glow to much about the full employment era. There was a strong sense of collective will, which created a strong sense of ‘society’ – something that Margaret Thatcher tried to deny during an interview with the Women’s Own Magazine on October 31, 1987.
But there were also gender and race inequalities, a disregard for the natural environment, and the lull in overt capital-labour conflict was partly achieved by the state guarantee of employment as a consequence of its full employment policies, but also, through the rise of mass consumption.
Marx, in the – Introduction, A Contribution to the Critique of Hegel’s Philosophy of Right – published in the Deutsch-Französische Jahrbücher (February 1844) was proposing that humans have the capacity for self-deceit and create religions for that purpose. The important point he was making is that there is human agency involved.
He wrote that:
Religious suffering is, at one and the same time, the expression of real suffering and a protest against real suffering. Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people.
Mass consumption became the opiate in the Post Second World War period.
In 1950, American sociologist David Riesman published his book – The Lonely Crowd: A Study of the Changing American Character – which describes middle class life in the US where people understood their ‘self’ with reference to the way they observed everyone else living.
It is the largest selling book on sociology of all time ((Source).
[Reference: Riesman, D. (1950) The Lonely Crowd: A Study of the Changing American Character, New Haven, Yale University Press].
Previously, people had what Riesman called an ‘inner-directed’ motivation, which meant that they acted according to their own sense of behavioural rules. Mass consumption was an essential aspect of this shift and defined visible patterns for others to mimic – the type and size of car in the driveway, the style of house, the clothing worn etc.
This patterned behaviour based on mass consumption was coercive but it diverted attention away from the essential conflicts between labour and capital, which had been more apparent to everyone during the production era before the consumption possibilities expanded for all.
The conformity also allowed capitalists to saturate ‘markets’ with mass produced and ever cheaper products that delivered high margins.
As an aside, the cover of the revised edition of the book published in 2001 by Yale University Press (Riesman was helped by two co-authors because he was by this time very old) is captured in the following graphic:
David Riesman followed The Lonely Crowd up in 1964 with a collection of essays he called – Abundance for What? and Other Essays
[Reference: Riesman, D. (1964) Abundance for What? and Other Essays, New York, Doubleday and Co].
In one of the Essays, The Suburban Dislocation, which had been previously published in the Annals of the American Academy of Political and Social Science in 1957, Riesman discusses the way in which industrial mentality from production infiltrate domestic life.
He wrote the marvellous summary of this process (page 250 in the collected volume, page 140 in the original essay):
Indeed, one reason why husbands have been willing to become domesticated is that they have been promoted from dishwashers to operators of dishwashers. Similarly, they use power mowers to give crew cuts to handkerchief-sized lawns and pierce their wives’ and neighbors’ ears with the screams of high-fidelity music. The open plan of the very newest ranch-style homes puts the TV set on a swivel in the center. Here it can be seen from all parts of the house so that urban news, fashions, gossip, and jokes can circulate in the homethroughout the daily cycle of the members of the family. But all these improvements are bought at the expense of space for the individual whose bedroom in the suburban development is often smaller than in city tenements.
[Reference: Riesman, D. (1957) ‘The Suburban Dislocation’, Annals of the American Academy of Political and Social Science, Vol. 314, Metropolis in Ferment, 123-146 – JSTOR link].
The era of mass consumption after the Second World War diverted attention of workers from the production process to the shopping centre, which took over where religion left off. There was an abundance of mass produced goods like never before and the new consumption boom also meant that the distribution of national income had to shift so that workers could purchase the ever-growing flow of goods (and then services) into the shops.
In this sense, real wages grew with productivity and the problem of capitalist realisation was averted. A period of relative calm emerged and the shopping centres crammed with all manner of goods functioned as the sedative.
This was the period before the financial deregulation began and capital had yet to discover that it could have it both ways: it could suppress real wages growth and still realise the surplus value on the ever-increasing volume of output it was producing by simply loading households up with debt.
The financial engineers would come along a little later to facilitate that new era of financial capital. But during the full employment era, capitalism was forced to share the spoils more evenly and mass consumption and real wages growth was the manifestation of that accommodation.
So how was it that the population were increasingly able to support the shifts that occurred in the early 1970s when Monetarism reared its ugly head and signalled a return to the economic dogma that had dominated before Keynes?
The great American author and activist – Harry Braverman – wrote in his magnificent book – Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century (New York, Monthly Review Press, 1974):
Thus, after a million years of labour, during which humans created not only a complex social culture but in a very real sense created themselves as well, the very cultural-biological trait upon which this entire evolution is founded has been brought, within the last two hundred years, to a crisis, a crisis which Marcuse aptly calls the threat of a “catastrophe of the human essence”. The unity of thought and action, conception and execution, hand and mind which capitalism threatened from its beginnings, is now attacked by a systematic dissolution employing all the resources of science and the various engineering disciplines based upon it. The subjective factor of the labour process is removed to a place among its inanimate objective factors. To the materials and instruments of production are added a “labour force”, another “factor of production”, and the process is henceforth carried on by management as the sole subjective element (pages 170-71).
Progressively, these “labour processes” (market-values) subsume our whole lives – sport, leisure, learning, family – the lot. Everything becomes a capitalist surplus-creating process.
The mass consumption era morphed into something even more comprehensive where aspects of our lives that were previously consider ‘non work’ (which meant non capitalist) became markets, with commodities supplied to support. The technological gadget revolution has accelerated this process.
If we judge all human endeavour and activity by whether they are of value in a sense that we judge private profit making then we will limit our potential and our happiness.
The neo-liberal era thus extended the ‘religion of mass consumption’ – and exploited exactly the same motivations that Marx considers led people to engage in religion in his time – “Religion is, indeed, the self-consciousness and self-esteem of man who has either not yet won through to himself, or has already lost himself again.”
Harry Braverman clearly understood that the capitalist profit-seeking machine would seek to impose its constructs on all aspects of human activity. Even those activities that were previously part of our non-working lives – our lives away from the oppression of work.
The aim was to make everything ‘work’ by which a special meaning was attached – that activity that allowed private capital to make profits and accumulate more capital.
The neo-liberal narrative thus had more to work with. Only activities that were part of this spread of labour processes was deemed productive. Public employment, especially large-scale job creation programs to reduce unemployment in times of recession, was vilified as being unproductive and constituted boondoggling.
While capitalist interests have always exploited gender, age and race differences as a tactic to divide-and-conquer the labour force – to amplify differences between working class groups and subvert any threat that subjective class consciousness might become pervasive, the chaos surrounding the OPEC oil crises and the resulting rise in mass unemployment gave them new terrain.
The unemployed were constructed as indolent dolts (unskilled) who were not prepared to put their ‘shoulder against the wheel’ like the rest of us employed workers. They were also reluctant to work because states subsidised their sloth through income support schemes.
These ideas came straight out of the mainstream economics textbooks, which preached the market-based dogma that was as far removed from reality as one could imagine.
Mass unemployment was no longer considered to be a systemic failure of the system to create enough jobs due to spending failure. It had become an individual phenomenon where the unemployed were the culprits and the state should do everything it could to avoid providing incentives to these ‘bludgers’ to continue their wayward and parasitic behaviour.
A nomenclature emerged to support this – dole bludgers, cruisers, lifters and leaners – and Ayn Rand must have smiled in her grave as her vision of the workers draining the wealth created by the entrepreneurs was elevated to the central stage of the public narrative.
The pre-Great Depression belief that unemployment was also generated by excessive real wages was also brought back into the narrative as if it was an eternal law or truth. Governments were also implicated through their interference into the market via minimum wage dictates.
The case against the state was by now being comprehensive orchestrated by a number of well-funded think tanks and key industrial peak bodies and their messages were amplified at megaphone volume by the conservative media.
We hardly noticed that our real wages growth had stalled because at the same time our credit cards appeared with generous limits and banks opened up their loan desks (we didn’t know they were securitising our mortgages).
The credit boom driven by aggressive financial engineering allowed economic growth to continue. It was like the game ‘pass the parcel’ – it was always going to blow up but for any particular individual there was time to enjoy the game and pile up the debts on the credit card.
This was mass consumption with all the vacuousness that Riesman had identified in 1950 still present but, now, with a ticking time bomb, which was hidden from our view and understanding.
I will continue this discussion on Monday when I take into account Vivien Schmidt’s arguments about the demise of the state in more detail.
Crazy weather – here and there
In Southern California at the moment (Santa Monica) and today (Thursday, January 7, 2015) record rainfall is expected. Already multiples of the normal January rainfall has fallen in this general area and only six days of the month have elapsed.
Back home, the Hunter Valley near Newcastle is experiencing record rains, flooding and high winds. There is generalised chaos on the roads as people try to find ways through the floods. The Hunter River which flows into Newcastle Harbour and out into the Pacific Ocean, has broken its banks upstream and residents are in trouble.
Updates are available HERE.
It seems weird that on both sides of the Pacific, where I live and where I currently am working, are experiencing similar extreme weather events.
And, on the other side of the Australian continent there is now a bushfire emergency with “lives and homes in the area under threat” (Source).
But none of this has got nothing to do climate change has it!
Running around Santa Monica
For the runners out there who travel and are always on the lookout for running circuits, I have done two runs now around this part of the coast.
First, late yesterday, I ran south from the Santa Monica Pier (about) to the Marina del Rey via Venice Beach – 11 kms return trip.
There is a well-defined running path (Ocean Front Walk) all the way down the coast which is largely flat. I did this run as it became dark and it was very stormy – the run back up North was into a very stiff headwind.
Today, I ran north from the near the Pier where I am staying along the Ocean Front Walk to Sunset Beach, which is where Sunset Boulevard at Inceville hit the CA-1 (Pacific Coast Highway).
The round trip 13.3 kms.
Here is a photo of the storm looking north to Malibu. It was drizzle heading north into the wind but then the heavens opened and it poured. Luckily, heading back after the turn around the wind was favourable.
I would recommend both runs. Tomorrow, before I leave I plan a run up to the Will Rogers State Historic Park, which is in the mountains overlooking the coast just north of Santa Monica beach – weather permitting.
From January 2016, the Saturday Quiz will be available on Friday to replace the Friday Lay Day blog. The Answers and Discussion will appear each Saturday morning (East Coast Australian Time).
We will all have Sunday free.
This will also give me a bit more time during the week to write other things and fit a lot of upcoming commitments and deadlines in more easily.
I haven’t decided what I will do about the Friday music segment.
That is enough for today!
(c) Copyright 2016 William Mitchell. All Rights Reserved.