The Left propaganda that the state is powerless – continues

When we published our latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World – last September, Thomas Fazi and I approached the UK Guardian to see if they would publish an Op Ed by us summarising the main arguments presented in the book. We received no response. Pluto tell us that the book is one of their better sellers since it was published. And it is not as if the topic is irrelevant in the Guardian’s assessment. That is clear from the fact that on April 5, 2018, they published one of their ‘long read’ articles by Rana Dasgupta – The demise of the nation state – which is a direct refutation of the ideas advanced in our book. This ‘long read’ also falls into the same traps and analytical errors that we point out has besotted the Left side of politics since the 1970s. The article is clearly part of the Guardian’s agenda to appear progressive but, in fact, be anything of the sort. As I have noted previously, the Guardian seems content to publish a torrent of anti-Brexit articles and criticisms of Jeremy Corbyn rather than provide any semblance of balance.

Here are a few simple questions to start with:

If the nation state is dead why does Wall Street spend billions of US dollars trying to influence who wins government and once government is decided on influencing the outcome of specific legislation.

Over the period that Rana Dasgupta claims the nation state has lost relevance, the total spending in the US on lobbying has gone from $US1.45 billion (1998) to $US3.36 billion (2017) and the number of unique, registered lobbyists who have actively lobbied has risen from 10,404 to 11,502 (Source).

Why does “Dark Money” exist? Billions are spent in an effort to influence elections for the ‘nation state’. Why, if the nation state is dead?

Look at the major US donors – National Rifle Association, US Chamber of Commerce, Americans for Prosperity, American Future Fund, and more.

Why?

Why do organisations such as the Dow Chemicals spend $US13.6 million lobbying government in 2016, if the state no longer has the capacity to limit their activities?

Why do “Many of the UK’s largest companies shroud their lobbying efforts in secrecy and do not disclose their political engagements to the public or shareholders” and spend billions of pounds lobby government? (Source)

Why did “six of the big energy companies” spend “tens of millions of dollars for a climate change denial campaign, despite knowing the claims were false”? (Source)

Even though the Greek government surrendered its currency sovereignty upon joining the Eurozone, why did the ECB essentially threaten to bankrupt its financial system in 2016 at the time of the referendum if they didn’t think the government had any legislative capacity to take independent decisions?

Why in small nations such as Australia is there a multi-million dollar lobbying industry? Why do gun lobby gropus spend hundreds of thousands of dollars “helping minor rightwing parties win seats” at elections in Australia? (Source)

Tobacco, gambling, medicines, energy, and the rest – why do they outlay billions to influence government legislation if the state has withered away?

The answers to all these questions are obvious and seem to have evaded our Guardian ‘long read’ author and they evade many on the Left who have bought the globalisation has undermined the state hype.

The argument in the Guardian article (cited above) started with the presumption that the various “convulsions in nation politics” that have emerged in recent years are signs of:

Exhaustion, hopelessness, the dwindling effectiveness of old ways.

All the events cited by the journalist around the World have a common cause in his view:

The most momentous development of our era, precisely, is the waning of the nation state: its inability to withstand countervailing 21st-century forces, and its calamitous loss of influence over human circumstance. National political authority is in decline …

… nation states everywhere are in an advanced state of political and moral decay from which they cannot individually extricate themselves.

The result: right-wing xenophobia, “wall-building” and all the rest of it.

Okay, “Why is this happening?”

Well all the usual suspects are named:

1. “20th-century political structures are drowning in a 21st-century ocean of deregulated finance, autonomous technology, religious militancy and great-power rivalry.”

2. “the suppressed consequences of 20th-century recklessness in the once-colonised world are erupting, cracking nations into fragments and forcing populations into post-national solidarities: roving tribal militias, ethnic and religious sub-states and super-states”.

3. “the old superpowers’ demolition of old ideas of international society – ideas of the “society of nations” that were essential to the way the new world order was envisioned after 1918 – has turned the nation-state system into a lawless gangland”.

And what has been “the result?”:

1. “our nations and the system of which they are a part now appear unable to offer a plausible, viable future. This is particularly the case as they watch financial elites – and their wealth – increasingly escaping national allegiances altogether.”

2. “Today’s failure of national political authority, after all, derives in large part from the loss of control over money flows.”

3. “They are a cause of national decay”.

4. “Nothing advertises the crisis of our nation-state system so well, in fact, as its 65 million refugees – a “new normal” far greater than the “old emergency” (in 1945) of 40 million.” Dasgupta ignores the fact that the World’s population in 1945 was around 2,500 million and is now close to 7,600 million.

Dasgupta claims that once upon a time:

National governments possessed actual powers to manage modern economic and ideological energies, and to turn them towards human – sometimes almost utopian – ends. But that era is over. After so many decades of globalisation, economics and information have successfully grown beyond the authority of national governments.

Keep thinking about the questions I posed at the outset.

The ‘long read’ is curiously ‘short’ of actual analysis but what there is is decidedly problematic.

What “actual powers” did national governments possess previously (“for much of the 20th century”) that they no longer possess?

Well the old favourites are wheeled out.

The government used to have “control over the domestic economy” but now they cannot control “money flows” and have thus can no longer “impose historic rates of taxation”, which previously:

… in an era of record economic growth, allowed them to channel unprecedented energies into national development

But now, according to Dasgupta there has been:

The destruction of state authority over capital … [and] … As a result, states have been forced to shed social commitments in order to reinvent themselves as custodians of the market …

… the wealth of the richest continues to skyrocket, while post-crisis austerity cripples the social-democratic welfare state.

Dasgupta claims that when governments had ‘power’ it delivered a “moral promise … to all”:

… the development, spiritual and material, of citizen and nation alike … [but] … The withdrawal of this moral promise over the past four decades has been a shattering metaphysical event in the west.

After the series of assertions comes the obvious conclusion that Dasgupta is trying to promote:

If we wish to rediscover a sense of political purpose in our era of global finance, big data, mass migration and ecological upheaval, we have to imagine political forms capable of operating at that same scale.

Aah, that one.

Global governments, “Transnational political mechanisms”, DiEM25 … and all the rest of the Progressive Left’s fantasy about internationalisation of government.

Back to the lost powers.

Note, the neoliberal framing going on here.

Tax bases have shifted somewhat – governments have run out of money which the rich have take for themselves and so the social-democratic welfare state has to be dismantled and the ‘moral promise’ abandoned because the governments can no long buy stuff or transfer money.

That is as a pure neoliberal myth as you will ever find. It is typical of the fake analysis that the Guardian promotes these days.

In the period that Dasgupta is considering (post 1970s), the monetary system that most nations operate within fundamentally changed.

Governments adopted fiat monetary systems and floated their currencies in international markets. That freed them from financing constraints that were present during the Bretton Woods era of fixed exchange rates.

These constraints existed even though the governments issued their own currencies because the central banks were committed to defending agreed parities between currencies, which meant that they had to withdraw currency from the system when it was facing downward pressure and vice versa in times of currency pressures upward.

In the modern era, no such financial constraints exist and so the fact that tax bases have shifted is largely irrelevant to the capacity of a national government to maintain first-class hospitals, schools and income security (the ‘welfare state’).

The reason that public infrastructure and public services are under threat and being retrenched is nothing at all to do with ‘lost’ fiscal capacity.

It is all to do with the shift in the dominant ideology that has occurred since the 1970s or 1980s depending when you start counting.

Back in 1973, the progressive American sociologist and economist James O’Connor published his book – The Fiscal Crisis of the State.

I considered his contribution in this blog post – The origins of the ‘leftist’ failure to oppose austerity (July 22, 2015).

By way of summary, O’Connor’s so-called ‘fiscal crisis of the state’ arose because the state had to keep private profits high and growing, by socialising various costs of production that would otherwise be borne by the private sector, while at the same time providing a redistributive function to ensure that workers enjoy some of the prosperity created by the capitalist production process.

It meant that government deficits would expand unless taxes rose and that was, according to O’Connor an alarming and “ominous” trend.

He claimed that an “early end to Federal deficits is not now in sight” which constitutes the ‘fiscal crisis of the state’.

This set the progressive Left off in a frenzy. They were duped as far back as then.

So Dasgupta’s ‘long read’ is nothing new – it is just the reiteration of the old story that the Left has become obsessed about.

Which brings us to the deeper problem with Dasgupta’s conception.

In this blog post – The Left confuses globalisation with neo-liberalism and gets lost (April 27, 2016) – I discussed how those on the Left have become intoxicated with the notion that global finance means government have lost control.

In the early 1970s, just as governments were becoming financially unconstrained and floating their exchange rates, which freed their central banks from engaging in official foreign exchange market intervention, the intellectual (Marxist) ‘Left’ was becoming besotted with notions that the deep crisis was to be found in the lack of taxing capacity of governments.

The situation became worse when the ‘Left’ started incorporating the increasing global nature of finance and production-supply chains into their analysis. They wrongly assumed that these trends further undermined the capacity of states to spend and maintain full employment.

The ‘fiscal crisis of the state’ and ‘globalisation’ were held out as the two major impediments to state sovereignty.

Nothing could have been further from the truth.

In the mid-1970s the opposition to the use of fiscal deficits to maintain full employment became visible for the first time and the inflation-first rhetoric emerged as the dominant discourse in macroeconomic policy debates.

Why was this happening?

Simple: capital wanted a higher share of national income and more control over workplaces and product markets.

The rhetoric was not new and had previously driven the failed policy initiatives during the Great Depression.

The neoliberals were relentless in promoting the idea that the use of government deficits to stimulate the economy coupled with widespread income support mechanisms operating under the guise of the Welfare State were damaging progress.

They also claimed the trade unions had gained excessive power as a result of the years of full employment.

With support from business and an uncritical media, the paradigm shift in the academy permeated into the policy circles and as a consequence governments relinquished the first major pillar of the Post-War framework – the commitment to full employment.

The ‘Left’ bought this narrative, largely uncritically, and in the 1970s, the neo-liberal resurgence as Monetarism, then privatisation and austerity, became virtually unchallenged and the ‘Left’ disappeared in its own Post-modern haze.

Academic journals became overwhelmed with all sorts of post modern deconstructions of this and that, while the main game, the macroeconomics debate was lost – in a no contest. James O’Connor had taught the ‘Left’ that the government was financially constrained and could not run continuous deficits because it would run out of money.

British Labour fell prey to the erroneous narrative.

Then, in March 1983, Mitterand’s so-called ‘tournant de la rigueur’ (turn to austerity), took France back to the ‘fight inflation first’ policies of Giscard d’Estaing in the late 1970s and ended the few years of social advance in France.

In many countries successive governments began cutting expenditures on public sector employment and social programs; culled the public capacity to offer apprenticeships and training programs, and set about dismantling what they claimed to be supply impediments (such as labour regulations, minimum wages, social security payments and the like).

The neoliberal era was in full swing.

But, importantly, neoliberalism works through the state not apart from it. The state can set the conditions that private capital has to work within.

That is why capital spend billions lobbying governments.

There was no ‘fiscal crisis of the state’, just a relentless and strengthening campaign from capital to extract more national income for profits and it used the ‘fiscal crisis’ smokescreen as a vehicle to justify all sorts of policies – privatisation, cuts to income support, deregulation that would be in their interests.

Note the causality – capital lobbied governments to change policy positions through legislation and regulation – to advance its interests.

Nothing has been done independent of the state!

It seems from reading Dasgupta’s ‘long read’ that the progressive argument has not emerged from the haze it entered in the 1970s.

The problem was that the Left, while observing that the global development of supply chains was placing new pressures on national economies to evolve and become more open, conflated this process with the emergence of neo-liberalism, and erroneously assumed that much of the latter was due to the former.

Dasgupta falls prey of that same erroneous logic.

As we explained in considerable detail in our new book Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – the two processes are separate.

We concluded that:

First, it is apparent that virtually all the major social, economic, and political advancements of the past centuries were achieved through the institutions of the democratic nation-state, not through international, multilateral, or supranational institutions.

Second, the labor-capital conflict that reemerged in the 1970s could only have been resolved in one of two ways: on capital’s terms, through a reduction of labor’s bargaining power, or on labor’s terms, through an extension of the state’s control over investment and production.

Third, social democratic governments were unwilling to take the latter option but decided to shift more towards advancing the interests of capital.

Fourth, neoliberalism has not entailed a retreat of the state but rather a reconfiguration of the state, where economic policy serves capital rather than general well-being.

Fifth, the process of neoliberalisation would not have been possible if governments had not resorted to a wide array of tools to promote it: the liberalisation of goods and capital markets; the privatisation of resources and social services; the deregulation of business, and financial markets in particular; the reduction of workers’ rights, the repression of labor activism; the lowering of taxes on wealth and capital, at the expense of the middle and working classes; the slashing of social programs, and so on.

Sixth, neoliberal ideology, at least in its official anti-state guise, should be considered little more than a convenient alibi for what has been and is essentially a political and state-driven project.

Even the most basic facts contradict Dasgupta’s claims that governments can no longer control “money flows”.

We were fed the line that capital controls were ‘taboo’ topics for mainstream economists, who hate the idea of anything that interferes with the so-called ‘free market’.

Despite the claims to the contrary, governments impose such controls because they are effective even in this modern era.

Malaysia imposed a range of controls on capital outflows during the 1997-99 Asian financial crisis, which were important in maintain its exchange rate stability in all the chaos that ensued.

When the Czech and Slovak governments decided to abandon their short-lived monetary union in early 1993, cross-border currency movements were prohibited while new Slovak banknotes were issued. The old Czech banknotes were ‘stamped’ and were in use in Slovakia until August 1993.

Capital controls were very effective in protecting the Slovak banking system.

More recently, Iceland also imposed capital controls in 2008, which limited the extent of the depreciation of the currency.

The retort is that the financial markets will always subvert capital controls, but the speculators know full well that such controls stop their damaging behaviour.

As Dani Rodrik noted in his Op Ed (March 11, 2010) – The End of an Era in Finance:

Otherwise, why would investors and speculators cry bloody murder whenever capital controls are mentioned as a possibility?

Even the IMF now proposes that capital controls are an effective defense against short-term capital outflow.

The IMF acknowledges that unilaterally imposed capital controls are beneficial bulwarks against the destructive forces of speculative financial capital.

Please read my blog post – Addressing claims that global financial markets are all powerful – for more discussion on capital controls.

Conclusion

If progressives can achieve one thing in the coming years it is to disabuse people of the type of claims made by Dasgupta (and a host of other writers) on the topic.

The hysteria from the Remainers in the UK is driven by the erroneous understandings presented in Dasgupta’s article.

Much of the right-wing populism that Dasgupta is fearful of is driven by government policy that is based on the very economic myths that Dasgupta advances.

We discuss those issues in considerable detail in Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).

Some of our Op Eds on our book:

1. The EU cannot be democratised – here’s why (The New Pretender, March 8, 2018).

2. The EU cannot be democratised – here’s why (Lexit Network, February 12, 2018).

3. The EU cannot be democratised – here’s why (February 8, 2018).

4. Everything You Know About Neoliberalism Is Wrong (Social Europe, October 20, 2017).

5. Make the Left Great Again (American Affairs, Vol. 1, Number 3, Fall 2017).

6. Against supranationalism: in defence of national sovereignty (and Brexit) (Brave New Europe, September 26, 2017).

Media Reviews/Mentions:

1. ‘Reclaiming the State – a Progressive Vision of Sovereignty for a Post-Neoliberal World’ (March 30, 2018) by Anthony Coughlan (Village Magazine).

2. Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World by William Mitchell and Thomas Fazi (March 15, 2018) by Mathew D. Rose (Brave New Europe).

3. Et si l’Etat créait lui-même les emplois pour combattre le chômage? (January 21, 2018) by Romaric Godin (Mediapart).

4. L’État, c’est nous (February 2018) by Aurélien Bernier (Le Monde diplomatique).

5. Welcome to the Golden Age of Conservative Magazines (January 25, 2018) by T.A. Frank (Washington Post).

6. Think our governments can no longer control capitalism? You’ve been duped (December 14, 2017) by Larry Elliot (Guardian).

7. Reclaiming the State – book review (November 30, 2017) by Phil Armstrong (Counterfire).

8. The magic money tree does exist, according to modern monetary theory (November 5, 2017) by Youseff El-Gingihy (The Independent).

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.