Beyond
Dependency or Beyond Capitalism?
New Zealand, as an ‘experimental case’ in welfare reform between the late 19th century and late 20th century, recently hosted a major international conference "over-viewing successful and innovative solutions to the problems of welfare dependency". This paper sets out to critique the ideological assumptions and empirical evidence for the `welfare dependency paradigm' that sets the terms of reference for this conference, and for other international initiatives to drive welfare reform. It argues that the case for welfare dependency rests on untenable ideological assumptions about individuals `choice', and that far from being a prime cause of unnecessary social spending, welfare needs are a consequence of social programmes that were originally designed to facilitate economic growth. The ideological shift from a macro concept of welfare as a social goal, to an attack on welfare recipients, can be traced to the economic imperative to cut taxes and public spending as a drain on profitability under the openly competitive requirements of the global economy.
What is welfare dependency?
The purpose of this chapter is to further the Marxist critique of the underlying neo-liberal assumptions of so-called welfare dependency and draw out the political implications of this critique. It looks in particular at the ideological offensive of the new right to justify welfare cuts in then ame of individual freedoms. The recent revival of a "market rights" discourse that opposes `welfare rights’ discourse draws on long-established arguments of classic free market theorists such as Hayek and Friedman.1
The argument, in summary, holds that state provision of welfare services is a drain on private savings, and therefore acts as a disincentive to innovation and hence economic growth. The more familiar argument operates at the level of the firm where entrepreneurs’ savings are taxed. However, in Hayek’s language, all individuals are entrepreneurs including those who sell their labour on the market.
Hence the latest attack on welfare rights is dressed up ideologically as a defence of the rights of individuals to become independent of the state and self-reliant in finding work on the labour market. This is justified by appealing to the concept of civil society in which individuals take responsibility for their actions within a consensual moral framework or virtue.2
While in general "dependence" on the state is defined as an impediment to market rights some welfare rights are conceded to the "deserving poor" who cannot work for reasons of child care, age or injury, as the basis for "targeted" or specific state income support. However, the precise question of: who is `deserving’ i.e. who can or cannot work, is now to be reviewed frequently, so that income support goes only to those who are proven to be genuinely `dependent’. Those who are marginal, are "forced to be free to chose" that is to work, or be "mainstreamed", into the labour market.3 Hence the point of going `Beyond Dependency’ reduces to getting beneficiaries off state welfare and into private work where they learn to take responsibility for their actions – including having children out of wedlock. Talk about the 'sins of the fathers', Green doesn’t go as far as Murray in advocating stopping benefits to single unwed parents, but he wants them to go to work.4
The promotional publicity surrounding the recent Beyond Dependency Conference (BDC) firmly focussed upon the positive message of making individuals independent of the state in order to exercise their right to freedom of choice in the market place. Dependency is defined as a "growing, long-term and cyclic problem with high human and economic costs". The focus of the conference is presented as "looking at solutions critically rather than just analysing problems". But it is clear that the problem is already conceived as dependency and the solutions that are to be considered in this light.
The BDC itself is one part of a strategic plan outlined by the Department of Social Welfare in its document Strategic Directions to deal with a continued rising levels of dependency upon the state despite growth in the economy and employment. The conclusion drawn is that welfare dependency and family breakdown are dysfunctional and have to be addressed by specific social policies.
The general thrust of the policies is to move from "welfare to wellbeing". This slogan packs a heavy ideological load. "Welfare" is now redefined negatively as dependency, whereas "wellbeing" is defined as the state of achieving "material adequacy, good future prospects, good health, good family relations, happiness, self-esteem, and respect of others". 5
When we look at the BDC "solutions" and the international authorities "sharing and extending ideas", some clearer idea of what "wellbeing" means develops. Most of the big name participants are known for their zeal in reforming state provision of welfare towards private provision. For example, Frank Field, now the new Labour Minister of Welfare Reform in the British Labour Government well known for books including Private Pensions for All and Losing Out: Britain’s Underclass, argues that the "welfare state must be reformed in ways which encourage honesty, labour market participation and self-improvement".6
Perhaps the best known US participants were Jean Rogers who heads Wisconsin’s welfare programmes, and Lawrence Mead best known for his strong advocacy of workfare in his books Beyond Entitlement, the New Politics of Poverty and Beyond Enlightenment? The main thrust of the Mead’s approach is captured in the title of a recent article "Raising Work Levels among the Poor" .7 It is clear for the main participants at BDC that work is the road to wellbeing. The workfare reform path, as opposed to the leftwing "poverty lobby" and the right-wing "radical revisionist" view is now the OECD trend.8
However, there is nothing new or trend setting about making work the central issue in social welfare. As I shall argue below, the welfare state had its origins in reproducing wage-labour for the labour market. The post-war Keynesian welfare state expanded to fulfil this role under conditions of near full employment.
So why is it that today the neo-liberal reform ideology of "market rights" is considered more appropriate than the welfare-capitalism ideology that prevailed in New Zealand over the post-war period? Why is it that a welfare system, which apparently could deliver wellbeing in the past, is now accused of undermining well-being and making generation after generation dependent on the state?
It seems that rather than being the independent variable, the welfare state is the dependent variable. Perhaps it is not individuals dependency on welfare that is the problem, but their dependency upon an economic system that cannot create sufficient long-term jobs at decent wages and which cannot afford to pay for levels of social security necessary to maintain a growing surplus-population.
Cast in this light, the ideological drive
towards workfare is an attempt to resolve an insoluble contradiction by
blaming the poor for their failure to take low-paid and demeaning jobs
in a system that cannot provide well-paid and meaningful work. In this
sense, going Beyond Dependency means going Beyond Capitalism.
Summary of Argument.
The argument advanced here, and advanced for twenty years in the literature, is that the welfare state in NZ, like other capitalist states, reflects an historic class compromise between the interests of capitalist and working classes. In the period of NZ’s economic formation and early development, the state was a key element in creating the conditions for capital accumulation.
Thus the state introduced the market and the operation of the law of value by commodifying land and labour. But as we can see in the watershed periods of the 1890’s and 1930’s and 1940’s the operation of the law of value was heavily distorted by state intervention to protect the economy from world values/prices.
In the 1890’s period the "state experiments" of W.P. Reeves and others in New Zealand and the Australian colonies, reflected the need for heavy state involvement in a small, weak and imperialist-dominated economies. The rapid expansion of small-scale family farming was heavily subsidised by state investment. The period from 1935 to 1984 was one in which the central role of the state was maintained to provide key elements of economic support to a protected economy.
In both periods, elements of state intervention could be characterised as "welfare". Labour and industrial policy, old age pensions, etc in the 1890’s set a rudimentary basis for social welfare, which was further institutionalised after 1935 in the form of massive state investment in production and reproduction of the economy.9
It was during the post-war period of a relatively universal Keynesian welfare state that the "historic compromise" between capital and labour was renegotiated. The post-war compromise was ideologically represented as the belief that state intervention can moderate the economy, restore equilibrium, and ensure equality of opportunity in the national interest.
While in the long run this is clearly a myth, nonetheless the experience of several decades of very high living standards and relative equality consolidated the welfare-liberal ideology and the set of fundamental rights associated with it - free and equal access to health, education, housing and welfare.
The essential point is that this ideology was the product of a particular set of historical circumstances; a protected and state- regulated economy, and a strategy of national capital accumulation that allowed a class compromise only made possible by these conditions. As always, however, the ideology presents the compromise as the outcome of ‘timeless’ values, such as social democracy or humanism. When the material foundation of the compromise disappears, the inertia of ideology survives in a new guise of social citizenship or social responsibility 10, that rapidly slides backwards into the new right language of civil society and community. 11 Now that the material conditions have changed, and the economy must be deregulated in order that firms can compete in the international marketplace, the ideology of class compromise is being re-negotiated, now in the language of market rights rather than of welfare rights.
However, no less than in the case of welfare rights, a consensus on market rights as serving the national interest is necessary to legitimate any re-negotiated compromise. While a protected economy and welfare rights did produce such a consensus, there is no guarantee that a consensus can be forged around the appeal of market rights i.e. market liberalism.
Liberalism, after all, by definition draws upon the acceptance of individual rights, or citizenship rights within the framework of a legitimate or authoritative bourgeois democracy. It is here that the particularism of class interests threatens to explode the imagined universality of national rights. More than anything, the political and ideological drive to shift people into work as a "right" comes up against the economic reality of declining jobs and a growing reserve army of labour.
Thus the resurgent contradiction between
the use-value and exchange-value of the commodity labour power explodes
all illusions about maintaining social peace in the face of mounting economic
and social crisis. The irrationality and anarchy of the productive system
poses the necessity of its transformation and a consideration of the means
for its transformation.
Welfare-liberalism and class compromise
Let us investigate beneath the surface of the post-war class compromise. The ideology of welfare rights - welfare liberalism - can best be summed up as "equality before freedom". New Zealander’s of all classes saw citizenship as guaranteeing equality of outcomes, not equality of choices. It was sufficient that the state provided equality of outcomes through a re-distributional social policy. There was no concern to sacrifice social equality for some nebulous right of freedom of choice.
This was the case not just for workers but for employers also. The post-war welfare compromise was after all something that had to meet the employers’ interests. Protection of the economy guaranteed production and consumption, but was labour intensive and so required heavy state intervention to reproduce relatively full employment.
In this sense the capitalist class was the real beneficiary of social welfare because it guaranteed provision of employees who were trained, healthy and housed in relatively compact and mobile i.e. nuclear families. State collective provision of welfare did not threaten the interests of the local capitalist class so long as profits could be maintained and not eroded by the state.12
It is interesting that the market liberal ideology now dominant chooses to go back over this history and rewrite it. From the standpoint of capital, seeking to replace welfare discourse with market discourse, the post-war welfare compromise must be repudiated. The revised position is that social welfare has always slowed down economic growth by suppressing market forces and investment and innovation.
This attempt to conveniently revise history has the purpose not only of undermining the whole theoretical and historic basis of the post-war welfare consensus but also of forestalling any return to state intervention, in particular the revival of a neo- or post-Keynesian approach to state management of the economy.
However, just as the market borrowed imperialist troops to defeat Maori resistance to implant capitalism in the 19th century, the market could not mature 100 years later except by means of heavy state protection. Under conditions of domestic substitution, high domestic costs did not eat into profits because of the lack of external competition. In fact the opposite was the case. If it had not been for massive state cross-subsidies of capital goods and wage labour behind trade barriers, local production would have stagnated.
The reality was that, as usual, market freedoms were transgressed against most forcefully by the capitalist class during the post-war boom, not by the state or by the unions. It was the capitalist class that accepted massive subsidies to keep nurture new businesses and keep them going. Had businesses been weaned off welfare dependency and been forced to compete on the international market at this time New Zealand domestic industry would have collapsed in its infancy.13
If we pursue this argument a bit further it becomes clear that ascendancy of welfare liberalism versus market liberalism is a consequence of the particular requirements of capital accumulation at a given time. The post-war welfare liberal discourse was rooted in the normality of state interventionism. Not only was the post-war boom one in which the state played a major role, the boom itself was the result of a massive international interventionist effort during and after the Second World War. The war had the effect of destroying German and Japanese competition, and weakening that of Britain and France, allowing the United States to benefit from massive state spending on military technology that spun off into the private sector.
Second, the victor states, particularly the US, could then bankroll the losers and create a newly efficient world capitalist infrastructure. All of this was accompanied by a heavy repression, by agreement with Stalin, of the labour movement from Europe to the Far East which had the effect of driving down wages and allowing the post-war boom to proceed on the basis of new capital stocks combined with relatively cheap labour. Therefore, to argue that state intervention under these historic conditions is a barrier to innovation is blatantly false. 14
In New Zealand’s case it is even more absurd as the historic conditions of capital accumulation in a small, dependent semi-colonial economy required heavy state intervention from the start. Marx critique of Wakefield’s New Theory of Colonisation delights in exposing the fact that Capital’s origins was not one of the "golden age" of self-sacrifice and savings of universal Hayekian entreprenuers, but a bloody, filthy process of "primitive accumulation" ; the forcible dispossession of peasant peoples from their lands, and their induction into the slavery of wage-labour.15 Marx also recognised the role of the public debt and taxation in spreading the risk of investment in the infrastructure of new capitalist countries onto the backs of its peasants and workers while ensuring that the profits and rents went into the pockets of the imperialist rentiers and their local agents.16
The argument can be made then, that in its whole history, but especially recent history, it is the national capitalists, as well as foreign finance capitalists, who have been most dependent upon the state as its primary welfare beneficiaries. This went far beyond the pork barrel politics of the colonial days to the massive state subsidies and state contracts which gave most local firms their start in life.17
We should not be surprised to find that it is these same capitalists, now disclaiming any benefits in the past, who are also the main beneficiaries of the erosion of the welfare state in its broadest sense. The recent restructuring in New Zealand saw much of the restructured wealth of the land, state assets and highly protected company assets redistributed as private wealth in the hands of prominent members of the Business Roundtable such as Brierley, Fay and Richwhite and Gibbs, who were loudly proclaiming the merits of the free market.
What explains this amnesia about the state
and the dramatic shift from welfare rights to market rights in the last
15 years? It can’t be that welfare was always a net drain on profits, in
fact it was necessary to ensure profits for a whole period. So why has
the question of social spending, and its supposed negative impact on work
become contestable? How is it that workers, once the unquestioned joint,
if subordinate, beneficiaries with the employers of the post-war welfare
state, are now alone in being cast in the role of "welfare dependents"?
Beyond dependency: the drive to workfare
The Welfare Dependency paradigm asserts that dependence on welfare undermines individual self-reliance and the work ethic. In the absence of any convincing evidence that workfare reverses this dependence on state subsidies, since by definition it means working for a benefit, self-reliance is being cynically driven by the ideologues of big business as "work is good for you". That is, the expectation is that the requirement to work will inculcate the work ethic that is apparently missing among those who are 'dependent'.
However, there is no evidence that increases in work output result from greater will to work. But there is evidence that work output increases with greater incentive to work, whether this is higher wages, fear of unemployment or long-term job security.18 In the absence then, of good jobs on decent wages, workfare recipients are "forced to be free" which means of course "free to work".19 It seems that for the market liberals this element of `force’ falls within Hayek’s concept of `limited coercion’ " to limit it to those fields where it is indispensable to prevent coercion by others and in order to reduce the total of coercion to a minimum".20
The "limited coercion" of workfare results in cheap, non-unionised, compliant wage labour, replacing more expensive and organised labour. As well as increasing work output, workfare drives down wages, hence cutting labour costs relative to output. Workfare also results in tax cuts and hence increases savings and investment. All of these factors figure as supporting arguments in the drive towards workfare. In Hayek’s terms, the coercion of workfare can be justified as reducing the total coercion which takes place when state intervention allows unions to collectively impose higher wages than the labour market can bear. It seems then, that once the ideological smokescreen is penetrated, that workfare is a cynical policy of re-activating the reserve army of labour so that it can fulfil its functions for capital accumulation.
The drive of neo-liberal reform of welfare towards workfare therefore, is not something that falls from the sky or right-wing economics departments. It is something which is constructed ideologically to induce a set of values that serves the interests of the capitalist class at a given period or conjuncture. If we look at the prime reason behind the arguments about welfare dependency, it is the attempt to justify cuts in both labour costs and taxation costs on companies that now have to compete internationally to survive. The ending of domestic substitution and the opening up of the economy means that the local conditions which sustained the post-war welfare state are not longer operative. Instead we see that firms must cut their local costs at all costs. Not only does this mean lower wage rates, but also lower labour reproduction costs in the form of a reduced social wage.
Much has been done to dismantle the welfare state to cut social spending, and to reduce local costs to an internationally competitive level. 21 However, there remains a large slice of social spending which has proven difficult to cut back because the changes in the economy have driven up rates of unemployment and benefit take-up and at the same time increased the social spending on these items. The explosion of the Domestic Purposes Benefit [solo parents, mainly mothers] in New Zealand is giving the most concern to the policy makers. The rights of families to income maintenance, established during the welfare-capitalist period, has created a huge drain on social spending. The failure to overcome this fiscal inertia is what is motivating the latest round of ideological offensives to remove the remnants of welfare liberal barriers to the labour market fulfilling Say’s law – supply creates its demand! 22 Getting solo/single mothers back to work and topping up the reserve army of labour seems to be the immediate international priority.23
What we see here is a long-term trend of the capitalist economy to create a surplus-population, coming into conflict with expectations of welfare rights that were embedded during the post-war boom period. For capitalism and its market liberal agents, while there is no avoiding the growing surplus-population, the maintenance of this surplus-population is beyond the responsibility of the state as it is a drain on profits. For social democrats and post-Keynesians, the surplus-population can be supported by state policies of job creating upskilling and experiments in property relations as well as taxation, without necessarily causing profits to fall.24
Therefore, the question as to whether the capitalist class should be coerced by society to take any responsibility for the maintenance of the surplus-population is very much contestable. Into this contest come several considerations. First, as welfare costs in competing countries may be next to nil, they must be radically reduced to establish competitive advantage.
Second, while there are unavoidable social control functions that the state must perform to keep the surplus population from becoming a political threat to social order, these must also be kept as low as possible. After all, in some countries ‘competitive advantage’ results from military dictatorships. Most important attempts to coerce capitalists under the regime of global capitalism lead to capital strike/flight against which social democracy has no answer.
Hence we can derive from this analysis the main arguments used by those whose task is to cut welfare spending. First, force people off welfare into low paying private sector jobs. This is good for them as well as society. The remaining deserving poor must prove they are unable to work ie 'work-tested'. Indeed willingness to work becomes the definition of the 'deserving poor’.
Second, where a layer of the surplus-population is unemployable they are stigmatised as dependent, the under-class or criminalised. The costs of maintaining social control of the under-class can be happily privatised. While most opponents of market liberalism and the ideology of civil society share this broad analysis, not all are agreed on the fundamental causes and the necessary cures.
We can identify three broad oppositional schools of thought - post-Keynesian, neo-marxist and Marxist. For the purposes of this paper I will not fully differentiate post-Keynesian from neo-Marxist approaches. Neo-ricardian approaches are an advance over vulgar economics since they are genuinely neo-classical. However, in their political consequences I do not believe they go beyond the post-Keynesian policy prescriptions i.e. some form of mixed economy labelled market socialism or the social market which takes as its starting point capitalist social relations i.e. private property.25
In New Zealand neo-marxist accounts, such
as Wilkes’ regulation theory approach, suffer from the same rejection of
capitalist social relations and substitute the fetishised individual of
the marketplace as social actor!26
Beyond Poverty: Post-Keynesian Redistribution
There are a number of attempts to explain the ideology of 'Beyond Dependency'. Most are outraged by the new right’s offensive and offer a kinder, more humane attempt to recreate the welfare state, or at least defend what is left from further destruction. These efforts are to be applauded, but at the same time their limitations must be pointed out. I shall consider a range of such responses and evaluate the validity of their arguments.
In general, these responses share a post-Keynesian approach to economics.27 For them there is no reason, in theory, that a capitalist economy, despite the impact of globalisation, cannot be managed to avoid the ups and downs of the business cycle.28 This broad view is also the basis for the economic policies of the Labour Party and the Alliance as well as the main trade union organisation the Council of Trade Unions (CTU).
A number of these protagonists have come out vocally against the BDC as an exercise in social engineering and/or ideological manipulation. Perhaps the most dramatic public response to the market liberal agenda of the BDC was that of the Unemployed Workers Rights Centre (UWRC). UWRC activists held an alternative conference and protested vigorously outside and inside the conference about its objectives and its high cost that effectively excluded participation by beneficiaries. They took the position that the BDC was part of a long-term plan to remove benefits and to cutback on social spending. The instigators of these cuts are seen to be multinational capital imposing its greedy interests onto NZ. They were backed in this protest by the broad left including members of the Alliance political party.
The UWRC organised the alternative conference "Beyond Poverty" at Massey University’s Albany Campus on the northern fringe of Auckland city. It drew a range of speakers including Mike O’Brien, Charles Waldegrave, Susan St. John and Prue Hyman, all well known as opponents of market-liberal ideology.29
Those who organised the alternative conference also tried to get the right to speak at the BDC. They claimed that the voice of the unemployed and organisations representing unemployed were not being listened to. Daily protests outside saw a number of arrests, but none of the protestors were allowed in to address the BDC.
The theme of most of the contributions at the alternative conference was that poverty and unemployment was the deliberate result of the wrong economic and political policies introduced by the 4th Labour Government after 1984, the National Government from 1990, and the current National/New Zealand First Coalition government. Poverty could be eliminated if a government responsive to the needs of the people introduced policies that would provide jobs, a living wage and decent benefits.30
For example, economist, Keith Rankin, specifically targeting the Beyond Dependency Conference, presents a case for the negative income tax as a policy mechanism that would eliminate poverty. It is a technical fix to the problem of poverty that is seen as the result of the wrong approach to income distribution. Rankin argues that existing tax and benefit policies disadvantage in particular those around the NZ$20,000 gross salary range. This is because welfare benefits abate sharply around that point and tax benefits do not compensate for this drop in income. The result is a "see-saw" effect that has total benefits greater below $10,000 and above $30,000 creating a "poverty trap" in the middle. The solution is to introduce a universal tax credit at just under $4000 so that no income group falls below this minimum income as the poverty line.31
Rankin’s solution is one of a number of proposals that are designed to bring about a redistribution of income and to eliminate poverty. Some might say that it does not go far enough. It is based on the assumption of a flat rate of income tax. It is similar to that of Roger Douglas’ controversial proposal of 1988 which split the Labour Government, brought about Douglas’ resignation and ultimately the fall of the government in 1990.32 The right wing political party founded by Roger Douglas, ACT (Association of Consumers and Taxpayers), continues to espouse the cause of the flat tax, but this is regarded as inequitable by Labour and the Alliance who still propose graduated tax rates, though much less steeply graduated than in the past.
It seems overall, that current Post-Keynesian "solutions" to welfare dependency, already concede the claim of the market liberals that tax rates should be flat or very modestly graduated. Is this the result of the victory of market liberal ideology or of the demands made by big business upon governments? It seems that the language of market liberalism has infected liberal democracy and the confidence of post-Keynesian economics. But is that sufficient to win the day? Is it the ideology that drives the reforms or the need for the reforms that selects the appropriate ideology?
These ideological offensives are certainly effective because they legitimate the use the language of the market and 'civil society’ that equates higher taxation with an attack on the economic freedom of every individual. Prime Minister Bolger has recently taken to using a battery of terms such as community, civil society and social capital borrowed from market rights discourse.
Today, such is the ascendancy of the market liberals, that even to suggest higher taxes on companies, draws a barrage of protests from a range of well financed agencies which includes the funding of two recent books which argue for the shift from state welfare to civil society.33
As an example of this dominance lets look at the massive campaign from the new right to demolish the Alliance’s proposed "transaction tax". This tax would provide the necessary tax base to allow the Alliance to phase out the regressive Goods and Services Tax (GST) and to restore higher levels of welfare spending cutback over the last years. But it immediately met with a concerted attempt by employers’ organisations to discredit it, not as an impost on the rich, but as a cost that would be carried by the whole of society.
What lies behind these efforts by the rich to evade, avoid and cut taxes, is not some idea of what is necessary to further profits, but actual practices which allow them to increase their profit. It is the drive to restore profits that has forced social democracy to accept the restructuring of the economy. The social democratic alternative does not exist because it is stopped dead in its tracks by the threat of capital strike/flight.
But does that mean that capitalists will necessarily oppose a shift back towards a more state-centred, redistributional welfare-capitalist `alternative’, provided it stops short of nationalisation or threats to private property? Now that welfare liberals concede the external constraints of the global economy, and the impossibility of re-nationalisation of state assets, perhaps there is a narrow margin in which liberal reforms may be able to restore full employment without sacrificing economic growth? Or are these hopes of a watered down 'alternative economic strategy’ no more than post-Keynesian pipe dreams. 34 Let us look at the arguments, from what is left of the social democratic opposition, to market liberalism in New Zealand.
There is a loose school of neo-Keynesian thought around economists 35 which argues that the whole restructuring process of the last decade and half, was too extreme, and resulted in lower growth rates than would have been the case with more moderate reforms. According to this school, there was no need to restructure rapidly or in such depth. For example, Easton argues that had different policies been applied, New Zealand’s cumulative GDP growth since 1984 would have been 10% higher.36
Since this is the case, then the problem
rested with the actions of the Labour government which abandoned its working
class support base and betrayed its manifesto in the interests of an international
elite and their local agents. The National-NZ First Coalition has temporarily
set back plans to return a left-centre government to undo some of the damage
of Rogernomics. Yet these writers argue that it remains possible for the
electorate to return a future government that can restore some of the lost
gains of social democracy and the level of social spending necessary to
provide jobs and decent social welfare to make up for the `social deficit’.37
Beyond Capitalism: Marxist Critique of Keynes
Most critics of Keynesian economics are from the right; the regulated labour market and statised labour movement raised costs that ultimately undermined profits. A critique of Keynesian economics from the Marxist left explains why such policies worked to boost profits for a period, but then became a drain on profits.38
The purpose of the critique is to prove that today no neo-Keynesian solution relying on state intervention or redistribution can restore jobs or wages sufficiently to eliminate poverty. On the contrary, profits require poverty as we shall see, and globalisation has made it especially difficult for small states, such as Australia and New Zealand, to impose any social limits on capital accumulation.
These global conditions today dictate an open, deregulated economy, so that the remnants of the Keynesian welfare state are an unwelcome drain on profits. Therefore, while it is important to defend the welfare state, rather than putting ones faith in a centre-left government, it is necessary to devise new strategies of defending and extending the welfare state by mobilising the power of the working class and its political allies.
The starting point for a critique of Keynesianism must be with Keynes himself. It is now widely recognised that Keynes adapted neo-classical economic assumptions to the period of capitalist slump in the 1920’s and 1930’s and looked to state spending to provide buffers to the ups and downs of the business cycle. I would add the proviso that neo-classical economics today are not neo-classical at all, but vulgar marginalist economics.39
If the assumptions of the so-called neo-classicals do not hold up, then neither do those of Keynes. To begin, the fashionable flaunting of Adam Smith as the classic thinker of the market masks some hidden truths which vulgar liberals of every stripe do not want to know about. The hidden hand may have maximised the general interest, but it was not expected to bring about an equalisation of individual opportunity. Nor do the latter-day Smithians want to admit that Smith was a classical, if somewhat inconsistent, adherent of the labour theory of value that holds that value is the product of labour.40
The significance of this is not only to put in doubt the neo-classical assumptions about supply and demand, in particular Say’s law, in which supply creates demand, but also Keynes attempt to correct for the breakdown of Say’s law, state investment and state spending to offset capitalists’ hoarding behaviour. But the problem is not the hoarding as such, but the reason for it, which is, in short, a falling rate of profit arising out of insufficient production of surplus value which makes investment unprofitable.
Given the real reason for hoarding, the problem is not fixed by merely substituting state investment for private capitalist investment because the drain on profits necessary to fund public investment further erodes profits. Keynes imagined that state monetary and fiscal policy could overcome the unreliability of the capitalists. He didn’t realise that money is not just a means of account but a measure of value and a store of value.41 Inflation must sooner or later devalue money as money capital and contribute to falling profits. But beyond that, state intervention was seen as an attack on something even more fundamental - private property rights.
But Keynes and his followers missed the vital factor of property relations. This was because they shared the ideological assumptions of vulgar marginalist economics – that the marginal productivity of capital determined profits. However, under capitalism, the most important aspect of money is that it is money capital. If money capital is not invested in the production of surplus value to realise a profit, then money is diverted into speculation or it devalues.
Attempts by the state to supplement investment decisions of individual capitalists were inevitably regarded as an attack on capital itself because it devalued money capital through price inflation. It took out of the hands of employers the obvious solution to their falling profits –competition with their rivals to drive out the weakest capitals and allows the strongest to survive by means of concentration and centralisation. It replaced market competition with a macro policy of state regulated inflation of money capital which threatened to drag down the whole monetary system. The capitalist owners of the means of production would not allow their private property rights to be subverted by the creeping nationalisation of money capital.
This accounts for the hostility which the new right expresses towards the state - it is seen to be undermining private property and competition as the guarantee of investment and innovation. Of course, the market liberals, following Hayek and Friedman thought that a return to the market would overcome the problem. They wanted to revive Says law after it been rejected by Keynes. They were convinced that far from regulating supply and demand, state intervention prevented the market from improving the efficiency of the supply side and generating its own sufficient demand.
What the market liberals were re-asserting was the role of the market, and without realising it, the role of the law of value in allocating social labour. What is missing from both Keynesianism and Monetarism is an understanding of the classical and Marxist labour theory of value, and in particular the application to the twentieth century of Marx’s theory of capitalist crisis, of the role of the state, and in particular, the role of the welfare state.42
A fuller account of these theories is found in the preceding chapters on the state and Welfare State.43 Briefly when it is understood that the business cycle is but a symptom of a deeper tendency which results in falling profits and crises as means of restoring profits, no amount of state spending can reverse the falling profits. At the beginning of a period of accumulation, e.g. the post-war boom, state intervention has the effect of smoothing the cycles, postponing through counteracting measures the fall in profits, but in no way can state intervention prevent profits from falling long-term. In fact, state spending exacerbates already falling profits and the underlying economic crisis now necessarily becomes also a political crisis.44
For the purposes of this paper the implications are clear. Globalisation has integrated the world market, so that MNC’s operate across many states and now no longer exploit state protective tariffs to the same extend as during the post-war boom. What they require from host states is subsidies that cut their costs to a minimum. New Zealand’s economy cannot sustain competitive/{competition from} international firms unless its cost structure is competitive. This means cutting social spending on a par with New Zealand’s Pacific and Asian competitors, some of that have virtually no welfare spending at all.
These economic imperatives are such that to acheive competitive advantage requires the latest technology and a skilled workforce. This will see a dual labour market emerge much more strongly, and a growing surplus population. The internationalised labour market will reproduce itself out of its market income with virtually no reliance on a social wage. This means that state provision of health, education and welfare will be cut back regressively to some point at which resistance proves too politically costly for further cuts. What do I mean by this?
What the globalisation of capital also requires of host states is the maintenance of political order. It is therefore important for the cut backs on welfare to be presented as necessary for the interests of individuals and also for the nations economic wellbeing.
This is where the Beyond Dependency Paradigm
kicks in. It presents individuals as free agents capable of achieving self-reliance
and market freedom at the same time as the availability of jobs and of
state provided education, health and other services is drying up. The obvious
shortfall of jobs is not blamed on capitalist social relations but on the
inability of individuals to live up to their market rights and duties.
Thus workers are scapegoated and blamed for their inability to find and
keep jobs. Those who remain in jobs resent supporting those without jobs.
Thus the employed and unemployed are divided into hostile camps at the
cost of working class solidarity, and for the benefit of the capitalist
ruling class.
Political and economic transformation
Those who oppose these trends in the name of the working class, oppressed groups, the poor, new social movements etc., must try to agree on a transitional programme uniting a broad-based workers movement in the struggle for immediate demands such as full employment to meet workers needs. Such a programme can mobilise workers so that they can overcome the barrier capitalism puts up to realing those needs. That is the barrier posed by capitalist social relations to the further development of the forces of production.45
Those who think that capitalism can be reformed will need to think again in the light of experience because the struggle itself will demonstrate that capitalism cannot deliver full employment. Social democracy recognised clearly in the past that it is not possible to overcome the irrationality and anarchy of the marketplace short of nationalisation. Yet today social democracy has retreated from nationalisation and settles for economic democracy. 46
The collapse of Keynesianism has proved that no matter how you model variations on the capitalist firm: the joint stock company, worker shareholdings, 'popular' or 'stake-holder' capitalism, the 'democratic firm', managerial revolution, separation of ownership and control, etc there is no 'half-way house' of evolutionary socialism. Under capitalism the critical factor is that the incentive for economic agents to perform efficiently must be private gain and this necessitates the reproduction of capitalist social relations.
This reality is also demonstrated by the transition to market capitalism in the former post-capitalist states. Private ownership of the means of production is necessary, if not sufficient, for profitable investment.47 No matter how we try to invent new reformist projects, we cannot get away from Hayek’s private entreprenuer and Marx’s property relations. Therefore, it is necessary to develop a programme that is capable of going from the defence of basic needs and rights today on which we can all agree, and through the necessary steps to make this happen, up to and including the transformation of the capitalist system.
The logic of Marxism is the socialisation of production. But Marxism is also regarded as having collapsed with the demise of the Soviet Union. "History has confirmed that democratic centralism and central planning are inferior to liberal democracy and market allocation".48
This simplistic view is contested by many. Not always from a marxist standpoint. For example Hahnel and Albert reject the arguments for market superiority, yet find a "tragic flaw" in central planning. It is the `bias against self-management’ that they define as "having decision-making input, or authority with respect to a certain choice in the proportion that one is affected by the outcome of that decision." 49
In my view their objection to central planning buys into the Hayekian argument that central planners cannot have the information necessary to optimally plan. Hahnel and Albert’s solution is to give local workers more democratic input into planning to ensure the goal of self-management. But this definition of self-management echoes Hayek. It accepts unequal knowledge of local conditions without knowing that this is the case and posits a bias against specific knowledge that necessarily leads to "snowballing authoritarianism".50
Without getting further drawn into these debates which are outside the scope of this book, the point I am making here is that objections such as these to central planning are 'academic’ in both senses, since it is the crisis of capitalist dis-welfare that makes planning necessary. By this I mean that nationalisation and socialisation will be put back on the agenda by the logic of capitalism’s decline and dis-function – irrationality and anarchy, not be the abstract feasibility of some or other intellectual model, or the merits or demerits of past experiences of planning public enterprises.51 The ability of planning to incorporate self-management, however defined, is a matter for democratic centralist decisions and practical applications in the future. Our tasks are those of today.
Therefore we have to fight once more to put both nationalisation and socialisation of the means of production back on the political agenda and try to put them into practice. We need to argue for nationalisation and socialisation without any concessions to private property found in the many schemes for market socialism.52
Both nationalisation and socialisation will have to be won on the basis of mobilising mass movements against private property at a time when there is little support for nationalisation let alone socialisation. People will have to be won over to these demands. Therefore support for these demands will have to be built gradually starting with basic united front actions defending basic needs and welfare rights. Then as the need arises, united fronts need to extend workers democratic control over nationalised key sectors of society, and ultimately to the socialisation of production. In that way, what may be seen as unpopular and unworkable today will become popular and workable tomorrow, or the day after.
A good example is the call for a shorter working week without loss of pay (now topical again with Jospin’s plan for the 35-hour week and the campaign of Australian unions for the 36 hours week). This addresses the central issues of full employment and incomes policy. Of course this demand cannot be taken in isolation of any other in the struggle for economic democracy. However, it is a key demand because on the question of employment it takes the market liberal ideology of self-reliance and turns it inside out. Instead of being held individually accountable for being unemployed, or collectively labelled an under-class, or criminal class, workers can unite to fight collectively for jobs for all.
The demand for a shorter working week puts the onus back onto the employers who cannot logically provide jobs for all on a living wage without losing profits. Nor can the state substitute make work schemes or a living minimum wage. Therefore what begins as a necessary defensive struggle will become a struggle for workers control over jobs as the real purposes of both public policy and the employers are exposed. Under capitalism any demand for economic democracy logically has to become a challenge to capitalist ownership of the means of production. Workers must be prepared to occupy plants, and to take control of and plan production.
This poses the necessity for nationalisation and as a consequence, more importantly, socialisation. Nationalisation merely means state ownership on behalf of the capitalist class. It does not of itself remove the causes of capitalist irrationality and anarchy. Once this is understood the struggle for socialisation can proceed. This means expropriating capitalist property as the collective property of the working class.
To be able to achieve this, however, the
working class must be mobilised as a powerful force capable of overthrowing
the forces of the capitalist state which defend capitalist property. Not
until the struggle has made much progress down the road to socialism will
these conditions for a revolutionary transformation of capitalist society
be created. But we must start out on that road now.
Some Conclusions
The BDC highlighted the strategy of the market liberals to cut back on social spending in the name of individual "rights". This market-driven strategy is rejected by welfare liberals who argue that more just policies can correct existing inequalities by providing jobs and redistributing income.
A Marxist critique of neo-Keynesianism demonstrates that the neo-classical assumptions of both the market liberals and the neo-Keynesians are flawed. Neither understands the real causes of economic crisis, or the limits that the capitalist economy imposes on state intervention. From the standpoint of the market liberals, the ideal of the neutral state protecting universal rights in a reborncivil society is revealed to be hypocritical and ideologically loaded. From the standpoint of the welfare liberals the belief in a class neutral state which can intervene to ameliorate inequality is shown to be naïve and self-defeating.
If those who want to defend welfare and
fight for real freedom are serious in their purpose they must first critique
the unreal or utopian assumptions of social democratic Keynesians and their
neo-Marxist allies. It is necessary to recognise the fundamental, deep-seated
causes of social inequality that can only be rooted out by the political
mobilisation of the working class and its allies internationally, and by
the revolutionary transformation of capitalist social relations.
Notes (Go to bibliography)
3 Kasper, Free to Work; Jones, Reforming....
4 Green, From Welfare... xiii)
5 Department of Social Welfare, Strategic...pp 6-7.
6 Department of Social Welfare BDC Brochure, p 5
8 Snively and Gray, 'Beyond 2000...'
9 Reeves, State Experiments…Lusk, Social Welfare...; Sutch, The Quest...; Poverty...; Bedggood, Rich & aPoor…
10 Boston and others, 'The Quest...'; O’Brien, 'Ideology...'; Cheyne and others, Social Policy...
11 Bowring, 'Communitarianism...'.
12 Bedggood, Rich & Poor, p115
14 Bullock and Yaffe, 'Inflation...'
15 Marx, Capital, Vol 1 p.926).
16 Bedggood, Rich & Poor...p 41.
17 Bedggood, 'State Capitalism...'; Macrae and Bedggood, Development...
18 Roemer, Property Relations...
20 Hayek, Individualism... p.17.
22 Jones, 'Getting Dole Bludgers...'
25 Roemer, Property...' Albert and Hahnel, Schweickart, 'Economic Democracy...'
26 Carchedi, Frontiers...p.186;Clarke, Keynesianism...; O’Brien and Wilkes,The Tragedy...
27 e.g. See Skidelsky on Keynes and Eichner on post-Keynesian economics.
28 Representative of this view in New Zealand are Bertram , "Keynesianism...'; Bayliss, Prosperity... ; Kelsey, NZ Experiment...; Kelsey and O’Brien' Setting...; and Easton, Commercialisation...
29 see O’Brien, 'Ideology,,,'; Stephens and Waldegrave, 'Measuring poverty...'; St.John, 'The Measure...'; Waring, Counting...; Hyman, Women....
30 Conference Papers published in O'Brien and Briar, Beyond Poverty
31 Rankin, 'An Appropriate...'
33 Green, From Welfare...'; Thompson, Welfare before...
37 e.g. Easton, 'The Post-war...'
38 Yaffe, 'Inflation...'; Mattick, Marx and Keynes; Economic Crisis...;Clarke, Keynesianism...; Carchedi, Frontiers.... Pilling, Crisis....
40 Clarke, Keynesianism...p:96.
42 See note 38. See Also Clarke, Marx's Theory...
43 See note 38 also Bedggood, 'State Capitalism...; 'The Welfare State...; Freeman and Carchedi, Marx...
44 Yaffe, 'Inflation...'; Clarke, Keynesianism...; Carchedi, Frontiers....
45 The term Transition Programme refers to the programme of the 4th International which can be found in Documents of the Fourth International
46 Schweickart, 'Economic...'; Bowles and Gintis, 'Democratic...p 243.
49 'Participatory Planning'. p329.