Social Welfare From Cradle to Grave?

The issue of the welfare state is central to Australasian capitalism. Beginning with the myth of 'exceptionalism', Australia and New Zealand were founded as settler states in which the state acted in the national interest. The welfare state is therefore a popular term for the parliamentary socialism of the 2^nd International. Even Lenin thought that the Australian Labor Party was capable of introducing socialism via parliament. The collpase of the welfare state is therefore a counter-revolutionary reversal to this social democratic utopia. In this chapter I argue that the welfare state was underpinned by a protectionist dominion capitalism, and that today with a rapid decline into semi-colonial status there can be no return to the comprehensive Keynesian welfare state.
 
 

Introduction.

It is now widely accepted that the last twelve years has seen a major economic 'experiment' in NewZealand. Once regarded as the social laboratory of democratic socialism in the late 19th century, New Zealand is now seen as the social laboratory for the most advanced and rapid neo-liberal reforms of the welfare state in the late 20th century. 1 Perhaps it is time for a new right triumphal speech at the grave of the welfare state?

The welfare state has suffered much damage but is far from dead. The major buttress of full employment has gone.2 So has the state's centralised regulation of labour relations. 3 This has brought about a reduction in minimum living standards below that necessary to allow citizens to participate in the "mainstream of society". 4 Yet the 'holy cows' of universal social services, health, education and benefits and pensions, while severely cut back, and subject to further cuts, remain structurally intact.5 Why the neo-liberal reforms have so far stopped short of completely dismantling the sacrosanct core services is a highly loaded political question.

The ideologues of the new right are determined to press on and complete the "unfinished business". This is the title of Roger Douglas latest book. The neo-liberals claim that New Zealand's renewed international competitiveness is partly the result of cuts in social spending. They are convinced that the economy will maintain its competitive advantage only by further cuts.6 They insist that social spending on the core services must be severely cut to balance the budget and reduce the tax burden in order to encourage investment. They are extremely critical of the government's efforts so far. In 1994 the budget was in surplus the first time since 1978, but as a result of increased tax revenue rather than deep welfare cuts. The Government's growth projections forecast income tax cuts of $1.5 B by 1997. But this is on the weak basis of demand-generated growth resulting from a devalued NZ$ and improved terms of trade since 1991. 7 The neo-liberals therefore have good reason to argue that even the reduced welfare expenditure of 1984/1995 is still far too high to be compatible with New Zealand's export competitiveness.8

At the same time political opposition to the new right attacks on social welfare is evident.9 Most significantly, this has brought about major electoral reform in 1993. Widespread disillusion in bi-partisan reforms which broke from party programmes and electoral mandates brought the electoral system itself into disrepute. Electoral reform was promoted to restore parliament as a representative institution. A proportional representation system will come into effect at an election in late 1996.10

According to the new right, this has made the Government hold back on further major reforms so as not to alienate the electorate in an MMP election year. 11 Similarly revived and remodelled social democratic and neo-Marxist arguments about the defence of welfare and democracy are being promoted by the trades unions and political parties in the hope of building a new centre-left electoral coalition around a new historic settlement.12

New Zealand's experience over the last decade raises a number of questions that need answers. Was the new right correct in claiming that the welfare cuts were necessary to establish New Zealand's competitive advantage in the global economy? Or were these claims merely part of new right ideological offensive to grab 'our' national resources as the left claims? Is it correct, as Roger Douglas claims, that further cuts to the 'holy cow' core social services are necessary to maintain competitive advantage?

Or, as the left argues, can these cuts be successfully opposed by ending new right political and ideological rule? And if so, how? The Marxist position I put forward here is that both left and right fundamentally misunderstand the nature of the capitalist state. It will take a more decisive challenge to the state power of the capitalist ruling class than they both envisage to prevent a further erosion of the welfare state.
 
 

Competing explanations.

As I outlined in the chapter on ‘Truth, Freedom and Justice’, we classify attempts to answer these questions as neo-liberal, social democratic, neo-marxist and (orthodox) Marxist. Neo-liberalism is most commonly identified with the 'new right' or 'free market' philosophy that owes its origins to Adam Smith and more recent writers such as Hayek and Friedman. Social democracy refers to the ideology that argues for the necessity of state intervention to ensure the market is moderated to produce equal opportunity.

Marxism and neo-marxism are more problematic since they are themselves subject to serious disagreements about the nature of Marxism. Fundamentally Marxists stress the economic causes of crisis, while neo-marxists point to political and ideological causes as being equally, if not more, important as economic causes.13

The reason neo-marxists reject economic determinism is not that they reject the concept of economic exploitation. Rather it is because they adopt a pre-marxist (or neo-ricardian) view of exploitation. They consider capitalism to be natural economy where labour creates value (labour theory of value). However, under capitalism part of the value created by labour is expropriated during exchange. Neo-Marxists therefore, attach much importance to politics and ideology as arenas of class struggle because they believe that the state can prevent exploitation at the level of exchange by legislating for a fair distribution of the national wealth.14

All four positions offer competing explanations of the causes of New Zealand's economic crisis and the varying extent of the destruction of the welfare state. The neo-liberal and Marxist, while they are diametrically opposed on basic economic questions, argue that the attacks on welfare are driven by the economy to restore competitive advantage and profitability. On the other hand, social democrats and neo-marxists, while differing on basic questions such as the labour theory of value, agree that these attacks are not determined mainly by economic forces but by whoever is in control of the state.

Most left academic accounts of the New Zealand welfare state fall into the latter state-centred category.15 They regard state welfare as the parliamentary response to historical working class demands made on the capitalist class - the historic compromise or post-war settlement. Welfare states can therefore be categorised according to the degree of success with which the working class, and to a lesser extent women and Maori, were able to get welfarism institutionalised.16

It follows that attacks on this historic settlement must result from a shift in the balance of class forces which favours the capitalist class and which may see a retreat from a universalist to a minimalist welfare state. The New Zealand welfare state is classified as reluctant (Shirley) residual (Rudd) or working-class (Castles). All of these positions argue that the welfare state fell short of being either the universalist or social democratic type of welfare state, and was therefore less resistant to historical reverses such as the neo-liberal (counter) revolution, than a more fully institutionalised or irreversible welfare state.17

Given this conception of the role of the state as either class-neutral (social democratic), or an arena of class struggle (neo-marxist), then the fight against the new right for a 'new realist' historic settlement depends crucially upon mobilising organised labour and allied social movements to win control of government.18

As we might expect, the state-centred conception of the welfare state is challenged from the far right by neo-liberals and the far left by orthodox Marxists. They both argue, though for different reasons, that New Zealand was, and remains substantially, a 'comprehensive' Keynesian welfare state (KWS). Its economic and social policies flowed from the requirements of a closed, protected capitalist economy. Of course the new right ideology suffers from historical amnesia. It refuses to acknowledge that the KWS boosted profits in the post-war period of import-substitution; or that there was for three decades a 'welfare consensus'. The new right retrospectively rejects the KWS as a mistake.19

Nor do all Marxists fully understand the role of the KWS. Pearce, followed by Roper, argues that import substitution played no significant role in the post-war boom in New Zealand. He relies entirely on a statistical analysis of investment in machinery and rising productivity to explain both the rise of profits in the 1950's and 1960's and the fall of profits from the early 1970's. While an important contribution, this analysis ignores the extent of state regulation in creating some of the conditions for profitability; the state's attempts to postpone falling profits; and the failure of these attempts which in turn created a political crisis. As a result Pearce and Roper could not explain, let alone predict, the need for the rampant deregulation that was necessary from 1984. Because it has little to say about the role of the welfare state this approach cannot address the state-centred arguments of social democratic or neo-marxists.20

In summary, I argue from a Marxist standpoint that New Zealand's social welfare policy is driven mainly by the historically specific requirements of capital accumulation in a small, dependent semi-colony. Although the state is not directly the 'tool' of the capitalist class, it operates within a capitalist world economy and it faces its `own' crisis unless it ensures the conditions of profitability. As profitability falls, so does the value of the currency. The national credit rating slumps and the level of state indebtedness escalates.

This creates a fiscal crisis that the state must overcome by introducing policies to restore profitability. Included in these measures are policies to cut social spending to reduced debt and taxation as a drain on profits. This is turn puts a strain on the 'authority' of parliament as a class-neutral institution. Thus, as I have argued in previous chapters, the form of crisis in New Zealand is necessarily one in which the state's legitimacy comes into question.

Nor is my argument economically reductionist or functionalist.21 The capitalist class expresses its interests ideologically, politically and economically through its agents such as the Business Round Table (BRT) parliamentary parties, and through the decisions of firms to invest or disinvest. The state responds to these agencies of capital by legislating and administering reforms that advance the interests of the capitalist class. State functionaries (bureaucrats) are largely unaware of the class interests they serve, or the fact that they are engaged in an objective process of class struggle and legislate for the interests of individuals, nations, or humanity. Similarly, waged workers, at varying levels of class-consciousness, respond to these reforms insofar as they impact adversely on their perceived interests.22

Therefore, while there is no direct mechanical cause and effect between falling profits and attacks on the welfare state, it is no accident that when taxes began to bite into falling profits, the capitalists' campaign against state spending is mounted. In the final analysis, therefore, it is economic crisis and restructuring which explains both the unparalleled speed and the severity of the welfare cuts in New Zealand.

I intend to show that a Marxist analysis of the semi-colony's economic crisis in the 1970's could explain the causes of the crisis, and the forms that crisis would take. It could also correctly predict the state policies that were necessary to resolve this crisis in the interests of the capitalist class. In order to prove the superiority of the Marxist account I will first critique the neo-liberal position before passing on to examine the fundamental defects of both social democratic and neo-marxist positions.
 
 

Neo-liberal "more market" economics

The underlying rationale for the neo-liberal attacks on social welfare is well known. Neo-liberal economics has many variants and theoretical schools but which all have their roots in 19th century marginalist economics.23 Essentially it reduces to opposition to state `interference’ in the market allocation of resources. This leads to calls for the "state-out-of-business" or deregulation and the creation of a `minimalist’ state.

From a Marxist standpoint, the re-emergence of this brand of `more market’ economics is directly related to the end of the post-war boom and the onset of a world economic crisis. A return to capital accumulation requires the unleashing of the law of value from state regulation to radically devalue constant and variable capital. Hence the purpose of cutting state spending is to reduce costs of production [devaluation of constant and variable capital] to restore competitiveness in the face of global market competition. This applies broadly to all state activities in the market, including production of goods and services, regulation of capital and labour markets, and of course, the cost imposed by social spending on health, education and other welfare services as well as income transfers.24

I shall not attempt to demolish the ideological premises of neo-liberal economics here. For now, we must note that neo-liberals complaints about the failure to carry through their reforms gives credibility to social democratic and neo-Marxist claims that democracy puts limits on the new right agenda.

Neo-liberals explain their inability to carry through their radical agenda of cuts to social spending, by pointing to political interference in the market. They argue that this is because governments are dependent on mass electoral support to stay in power and to maintain their accountability as mandated by the majority. Does this mean then that there is a contradiction between democracy and the neo-liberal agenda as the social democratic and neo-Marxist ideology suggest? Is there some inbuilt requirement of the capitalist state to maintain liberal democracy that may require it to stop short of the creation of a minimalist welfare state?

This was the implication of the failure of the last Labour Government to complete its radical reforms. Roger Douglas' flat tax and negative income tax proposal tabled in 1988 was rejected by the centre and left of the Labour Government. Douglas was then sacked as finance minister. 25 Labour's massive defeat in 1990 could be interpreted as electoral punishment for breaking with its social democratic roots and deregulating the economy.26

Second, the National Government after some major attacks on benefits (pensions, DPB, stand-down period for dole) and a shift towards user-pays in health, education and housing, softened or reversed some of these reforms before the 1993 election. This led to a stream of new right complaints that the government was going slow on its state reform agenda. However, once back in office the government showed that it still on track in cutting back the welfare state towards a minimalist state, even if moving at a reduced pace. It projects a cut in state spending from over 40% to less than 30% in three years along with income tax cuts. Despite a bare working majority, the National government has also tried to settle Maori Treaty claims with the 'fiscal envelope’ and intends to proceed with the sale of state forests.

Third, the shift from FPP to MMP in 1996 introduced a further constraint on governments' ability to drive through the neo-liberal agenda. Some elements of big business campaigned hard against MMP claiming cynically that it would weaken democracy, by making MP's remote from those they represent, and favour 'party hacks'. These transparent arguments did not conceal the real interests at stake. Both neo-liberal and social democrats recognise that the speed and severity of the radical reforms of the last ten years were facilitated by a concentration of power in Cabinet which allowed governments to abandon their promises and rush the reforms through with little time for public debate and effective resistance. It is widely held that MMP would make rapid change more difficult because coalitions would be based on agreements on a joint programme.27

But is the neo-liberal agenda incompatible with a more representative democracy under MMP? Will MMP impose a stronger democratic control on welfare state cuts? It seems not. Even with a lower threshold of representation under MMP, neo-liberals can win electoral support. Despite over a decade of restructuring, about one third of the electorate still supports the National government. Nearly two-thirds support the economic direction of the reforms. There is no reason to believe that National will pull back from its course under MMP. In fact MMP may provide it with a strong right or centre partner to give it the electoral mandate to complete the neo-liberal agenda.

This explains why prominent neo-liberals have got behind the formation of a new ultra-right political party ACT [Association of Consumers and Taxpayers] founded by Roger Douglas and now led by Richard Prebble. As the title of his last book Unfinished Business conveys, Douglas and ACT are determined to get into power to complete the radical agenda. The main ideological thrust is the demolition of the universal core of the welfare state. The mechanism - the flat tax, negative income tax and vouchers in place of state funded health, education and housing.

The first MMP election in 1996 may well see a centre-right coalition including ACT come to power. Douglas and Co are using their large financial resources to campaign now for the next election. ACT is making a play for not just the large corporations, but also for the "ordinary NZ’er" who is "denied choice" by continued state intervention in their lives. This ideological offensive could see Douglas winning support across all social classes. So while MMP may be less conducive to rapid radical reform than FPP, it is not necessarily a barrier to the completion of its reform agenda.

As I shall argue below, there is no democratic function of the state that prevents the completion of the neo-liberal agenda. The only barrier to a more-market National/ACT government is organised working class resistance. That this has been largely lacking in the last ten years explains why most of the neo-liberal agenda has been achieved. Structural unemployment, labour market reform and a move towards consumption taxes have cut costs of production and shifted the burden of funding welfare directly onto the working class.

If no concerted working class resistance is mounted against further neo-liberal attacks, this may even make the ACT agenda for a minimalist state, based on a flat tax and fully targeted [ie restricted access based on narrow definition of citizenship] social services, attractive to some workers. A new historic compromise grounded on the terrain of a minimalist state may therefore be reached without breaching the state's legitimacy. What then, if at all, has social democracy got to offer to stop the slide to a minimalist welfare state?
 
 

What can Social Democracy Offer?

The social democratic position reduces to a basic belief in the necessity of state intervention in a capitalist economy to ensure social justice. This assumes that the state is 'sovereign' in the management of the economy and has the `power' to regulate the market allocation of the factors of production (resources) and create equality of opportunity in society. Since the 1890's, as the dominant ideology in the semi-colony, social democracy has seen the welfare state as the measure of its success in reforming and transforming capitalism into an egalitarian society. It blames the recent attacks on the welfare state on the narrow anti-social interests of the new right elite, who have hijacked democracy and the state apparatus in order to drive through their reforms.28

Today social democracy is on the defensive after 12 years of neo-liberal reforms. It blames the breakdown of the historic compromise that allowed people of all classes in New Zealand to agree on basic entitlements to social welfare, on the intervention of a foreign and local financial ruling elite.29 It claims that the Labour Party was hijacked by the ruling elite in 1984. It resorts to a conspiracy theory in which foreign interests and their local agents in the Treasury and political parties were able to subvert democracy and introduce their radical agenda.30 Social democrats argue that the new right attacks on the welfare state can be rolled back by reclaiming popular sovereignty from the foreign elites and their agents.31 It claims partial victories in the halting of Rogernomics and in the introduction of electoral reform.

Recognising that they have lost much ground to the new right, and to the centre populism of New Zealand First, both claimants to the social democracy franchise, Labour and the Alliance, are attempting to strike a new realist historic compromise around the concept of the social market. While this concept concedes much of the ground won by neo-liberal reforms such as fiscal responsibility and monetary targets, it does attempt to draw the line and to defend and restore certain basic welfare rights as fundamental to a 'decent society'. 32

From a Marxist standpoint, these plans are pipe dreams so long as they pin their faith on bourgeois democracy in the form of a sovereign nation state. The decisive shift to an open internationally competitive economy means that world economic constraints on a small dependent economy forces the New Zealand state to act as the direct agent of international capital. The semi-colonial state has always acted to ensure the repayment of the national debt to British finance capitalists. While in the past the state was allowed to manage the local economy so long as it met the debt repayments, today it has no such autonomy.

Today social democratic new realism must take into account the total subordination of the open, deregulated economy to global capitalism. This means first, putting the interests of international capitalist in increasing profits ahead of any consideration of social welfare. As always, realism (or rationality) dictates that correcting the economic deficit must take precedence over redressing the social deficit. But today's social democracy is forced to admit it puts 'profits before people' openly.

Yet even this new realism is not realistic enough for the capitalists. Any attempt to mobilise a popular mandate to reclaim national sovereignty over the economy and return to state regulation and Keynesian economics would be hampered by the Reserve Bank Act. This requires the Governor, Don Brash, to keep inflation between 1-2% (i.e. a built-in deflationary policy) high interest rates and no devaluation of the currency. Any attempt to tamper with the Fiscal Responsibility Act or other basic reforms would undermine the international competitiveness of the economy, and would lead to immediate economic destabilisation and political crisis.

The new realism appears to give social democracy a new lease of life as it attempts to organise further resistance to the cuts to the core welfare holy cows. But this resistance is largely verbal and therefore token. The true reality is that social democracy can only serve one master. Today's brand of economic nationalism is in contradiction with the international interests of the capitalist class. Therefore while social democracy preaches national sovereignty, its new global role is to reconcile workers with international domination.

This is why in the face of the persistent neo-liberal assault on core services, a social democratic defence based on opposition in parliament continues to be ineffective. Under MMP, a centre-left coalition Government made up of Labour and the Alliance, or a popular front of Labour and NZ First, given the international as well as domestic constraints on the local economy, would carefully avoid policies that might cause a massive capital strike/flight and destabilise the economy.
 
 

Neo-Marxist "state autonomists".

Unlike social democrats, neo-marxists identify the basis of inequality in the exploitation of the labour of workers. Exploitation occurs because capitalists use the fact that they own the means of production to deduct their profits from the value of workers wages.33 Social spending is a drain on profits to pay for the social wage. Therefore the cuts to social spending are made to reduce taxation and to restore profits at the expense of the social wage.34 It follows that exploitation results in an unequal distribution of resources at the expense of workers not only nationally by also globally.35

Again, unlike the social democrats, neo-marxists recognise that the state is not class-neutral or 'above classes'. Capitalists use the state as an instrument to dominate society and incorporate workers into a hegemonic order so as to reproduce the exploitation of wage labour. But they must do so without exposing the state's class basis. Therefore the economic attacks on the state to reduce social spending are held back by the need for capitalists to preserve the legitimacy of the state as 'above classes' to avoid the risk of exposing it as a state which serves the interests of the capitalist class alone. Such exposure would allow workers to become class conscious and struggle to overthrow the state. To avoid this the state must present itself as relatively autonomous from the capitalist class.36

For example, Claus Offe, vaguely following the Frankfurt School, shifts the contradiction between the forces of production and social relations that are specific to capitalist society, to that between society and state. For Offe, crisis-ridden society (as the result of capitalists not making enough profits) requires the state to overcome its crisis. This is a functionalist view because it leads Offe to argue that the welfare state is `irreversible’ because `indispensable’ to the capitalists. But Offe reduces the legitimacy of the state to its welfare role. He claims that to retain its legitimacy, the state must meet the welfare needs of its citizens.

However, as much of the debate on citizenship and welfare rights has shown, growing sections of workers may be excluded from citizenship on national, racial, or other grounds. Under the extreme case of fascism, the capitalist state can maintain its legitimacy by means of racist and chauvinist criteria of citizenship that plays off citizens against non-citizens [e.g. the `alien' under-class]. 37

For neo-marxists then, the class struggle becomes the ideological battle for control of the state and therefore control of economic resources. Therefore, attacks on social welfare will continue as long as capitalist hegemony prevails. Neo-marxists see social democracy as complicit in maintaining capital's hegemony since it provides a liberal cover for the new right by saying that the welfare state must be reformed and that some cuts are necessary to increase profits in the national interest.

In that sense new realism is no more than a revamped reformism playing its historic role of incorporating the working class into capitalism by promises of `trickle down' benefits. Social democracy 1990's style plays this role in the attempt to reconcile the growing contradiction between the capitalists’ use of the state to attack workers, and the ideology that the state is above classes, standing for the national interest.38

The neo-marxist social programme calls for the overthrow of bourgeois hegemony. Counter-hegemonic intellectuals leading mass social movements will contest capitalist control of the state, win power and reinstate social welfare. By these means some capitalist property (which represents workers stolen wages, stolen Maori land and unpaid domestic labour) can be nationalised under democratic control and a form of market socialism introduced.39
 
 

Marxist critique.

While the neo-marxist critique of both neo-liberal and social democratic ideology marks a theoretical advance, it is unable to escape the charge that it is also trapped by bourgeois hegemony. First, its neo-ricardian conception of exploitation is located at the level of distribution rather than production. This leads to an incorrect view of the state as capable of redistributing value and hence to the relatively autonomous state-centred approach to class struggle.40

The result is that neo-marxists have done no better than social democrats in understanding and predicting the fundamental economic crisis which made the neo-liberal revolution inevitable.41 Instead they give equal weight to the state's role in managing economic crisis with that of maintaining legitimacy. They argue that cuts in the welfare state cannot go beyond certain limits without undermining legitimacy. 42 They then draw the wrong political conclusions that capitalism cannot solve its economic crisis at the expense of democracy. This therefore allows the working class to contest the capitalists for control of the relatively autonomous state for the defence of citizenship rights, social welfare, full employment, trade union rights, and minimum living standards.

A number of important consequences flow from this distributional analysis. First, class- consciousness can be spontaneous because exploitation is transparent being no more than a zero-sum profit/wage contest. There is no need for Marxist vanguard parties to expose the hidden nature of exploitation and to raise class-consciousness.

Second, extra-parliamentary politics are always directed at 'taking-over' the existing state as an instrument of working-class rule. Marx on the other hand was clear that the capitalist state acted to reproduce capitalist class exploitation by defending capitalist property relations. It could not be 'taken-over', but had to be smashed and replaced with a Workers’ state.

But even on the historical evidence so far the claim that democracy places limits on welfare cuts is wrong. The global neo-liberal 'counter-revolution' of the 1980's is evidence of this fact. The neo-liberal austerity attacks on state welfare in Western capitalist states of the '80's and '90's have been limited not by respect for bourgeois democracy, but by extra-parliamentary opposition. That these attacks have gone so far without meeting well organised working class opposition explains why they could be legislated by democratic Thatcherite-type parliaments and did not have to be imposed by fascist dictators.

The evidence of the collapse of the former 'communist’ states after 1989 is even clearer. The belief that bourgeois democracy could rescue these states from economic backwardness has been faced with the stark reality that even where the process has been formally democratic as in Eastern Europe, the result is a huge loss of jobs, living standards and social welfare. The belief that market socialism can now offer a way out of economic collapse comes up against the reality that capitalist restoration in these states creates such extreme conditions of dis-welfare that it is incompatible with bourgeois democracy.

Therefore, in both capitalist and restored capitalist states, neo-marxists cannot predict the necessity of further attacks on jobs, living standards and social welfare because they have no conception of the underlying dynamics of the world capitalist economy in crisis. When these further attacks are met with organised working class resistance, you can be sure that capitalist states will abandon the kid glove of democracy for the iron fist of fascism.43
 
 

The limits of Welfare Capitalism.

The problem with the preceding explanations is that they all accept capitalism as the natural economy. Accordingly the problems facing capitalism are not fundamentally about production but about distribution. Each sees these problems differently depending on their class interests. For the neo-liberal it is wages and taxes squeezing profits. For the social democrat it is profits squeezing taxes and wages. For the neo-marxist it is the exploitation of wages by profits.

But in all cases the cause is an unfair distribution of wealth that can be corrected by the appropriate economic and social policies - that is reforms - left, right or centre! Therefore both the problem and the solution hinge on whoever controls the state because they also control the distribution of resources. If the wrong people control the state then it is necessary for the right people to take control. This is why the struggle over the welfare state has taken on such importance in political debate.

As I have argued, this view of politics results from a conception of the capitalist state as independent of production.44 Such a view is trapped in capitalist hegemony - the ideology of fetishised social relations appearing as market relations which presents the state as referee, shared by all non-Marxists. Capitalism is seen as a natural economy - the market is universal - rather than as a specific mode of production with specific social relations.45 The vulgar economics of the neo-liberals depicts market capitalism as the most highly evolved natural economy where market forces give liberal freedoms their fullest reign. The only contradiction to this realm of freedom is state interference in market forces.

For social democracy contradiction exists between equality and the 'freedom' of the free market. Yet liberal democracy and welfare-capitalism, (i.e. today the social market) can permanently resolve this contradiction. For neo-marxists the contradiction is between the natural economy where labour produces value, and the capitalist class which expropriates part of that value. They think that this contradiction can be overcome by mobilising workers and their allies to make use of the capitalist state to nationalise private property.

Because all of these positions are trapped in bourgeois hegemony there is no understanding of capitalist social relations of production. There is no conception of the inherent contradiction, between use-value and exchange value, which motivates capitalist development and causes the tendency to crisis. It is because this contradiction, expressed by class struggle, develops to the point where the productive forces can no longer be developed, and must be destroyed to protect capitalist profits, that Marx held that capitalism would face mounting crises which could not be overcome by state intervention. The state's attempts to resolve crises at the expense of workers would expose its fetishised form as a relatively autonomous instrument of class domination committed to reproducing capitalist social relations.46

Since the state is a capitalist state, its interventions are necessary to create and reproduce the capitalist mode of production. More specifically state intervention is required to counter the "tendency for the rate of profit to fall" (TRPF). However beyond certain limits the state cannot counter crisis nor cure the causes of crisis which are inherent in capitalist production. The KWS represents a set of policies designed to suppress the TRPF in a period of capital accumulation. When the KWS reached its limits and failed to prevent crisis in the late 1960's and early 1970's, the state was then required by directives from the capitalist class to switch its demand-side policies to supply-side policies. In Marxist terms this is nothing more or less than the devaluing of constant and variable capital necessary to restore the rate of profit.47

In New Zealand, the KWS was fully developed as an instrument of economic insulation and regulation from 1935 onwards. The state intervened in every phase of the circuit of productive capital, protecting local manufacturing, subsidising agricultural input and output prices, and of course in its guise as the `welfare state', partially `socialising' the reproduction of labour power. 48 This was a partial suspension of the law of value, because socially necessary labour time in domestic manufacturing was higher than internationally. This meant that surplus generated by less efficient state regulated production was not redistributed internationally.49 This was also the case in pastoral exports which became increasingly subsidised by the state.50

This theory explains and predicts the partial socialisation of domestic labour, the relatively full employment and other employment policies such as Equal Pay and Accident Compensation that followed. The state's involvement in the reproduction of labour-power represented a semi-productive investment of surplus for capital so long as these material conditions of protection and full employment prevailed.51 However, given the obvious limits of scale in a small economy this could not last. What is more, even within the scope of protected manufacturing the TRPF asserted itself as a necessary and inevitable tendency towards crisis.

The evidence shows the rising organic composition of capital as an underlying cause of the TRPF in the post-war boom.52 The attempts by the state to offset the TRPF came up against specific concrete factors resulting from the protection of agricultural export markets and protection of domestic manufacturing. The KWS could not overcome the limit of the small domestic market by its Keynesian demand management techniques. As a result the TRPF was expressed as stagflation. The analysis shows that, as predicted, the KWS could not suppress the fundamental causes of falling profits by the late 1960's. As a result the welfare state began to come under attack from 1967 onwards. Deregulation and restructuring of production for export would be necessary, and the state would have to reverse its insulation of the economy and open it up to the world market.

However, these attacks did not begin to bite deeply for another decade as a significant expansion of welfare and citizen rights occurred the 1970's.53 Not until the limits of the economic nationalist strategy of insulation and import-substitution had been exhausted with the political bankruptcy of the Muldoon administration after 1981, and its defeat in 1984. did the pent-up economic requirements of dominant fraction of the ruling class impact directly on state policy.

This raises the question as to why it took another ten years to bring about the neo-liberal counter-revolution. The key issue here is that the post-war political consensus involved an national protectionist alliance between workers and manufacturers. Farmers were subsidised to include them in the consensus. Restructuring had to be forced onto governments by the dominant fraction of large manufacturers who had to export or die. Ironically it was the National party which was most committed to the post-war consensus. It was Labour that first acted to break the consensus because it had no loyalty to farmers and could rely on the labour movement’s loyalty to the Government.54
 
 

Conclusion.

Left ideological inertia continues to fuel the illusion that New Zealand can be restored as the social democratic laboratory of the world. Against this, Marxist analysis of the New Zealand case proves that the state is fundamentally a capitalist state and that in New Zealand welfare 'experiments' are the necessary product of semi-colonial state intervention to reproduce bourgeois society. The KWS was highly developed to meet the needs of a developing national capitalism rather than as a response simply to the pressure of working class reforms, or a set of 'welfare values'.55

This is proven beyond question by the events of the last ten years. Today the material conditions that made the KWS necessary no longer exist, but the welfare needs of the working class still exist. Yet it is the needs of capital rather than the needs of workers which account for the attacks on the welfare state. Its destruction is driven by the necessity for capital to free up the domestic economy to become part of the global economy. Its fate depends not on the degree of social democratic working class struggle to defend the post-war historic compromise, or the struggle to win a new realist compromise today. Nor is there any in-built legitimacy functional requirement that the state protect the sacred cow core services to preserve its legitimacy.56

In the globalised economy in which New Zealand is a minor producer of mainly primary products, there is no prospect of social democratic governments or neo-marxist social movements, already accepting the realism of profitability before equality, stopping the move towards a minimalist welfare state. Profitability for transnational capital in the deregulated and open economy does not require full employment or a protected local market. In fact it does not even require a local market.

Profitability within the global economy dictates that the state re-privatises the reproduction of labour power, and abandons the management of labour relations to the market and keeps firm control on the money supply and inflation. 57 It is the extreme shakedown and turnaround of the economy over the last decade that explains the speed and severity of the neo-liberal reforms. For nearly twenty years Marxists have predicted that the crisis would be resolved at expense of working class and the socially oppressed unless workers and their allies mobilised on the basis of a programme to transform capitalist social relations.

However for such a mobilisation to occur a genuine crisis of legitimacy would be necessary, exposing the state a capitalist state and giving rise to a class nscious movement to overthrow the state. Such a crisis of legitimacy will not be reached until the state can no longer get away with further attacks on living standards, jobs and the `holy cows' of welfare in the name of the `national' interest. While parliament may get a short-term face-lift from proportional representation, long-term, the semi-colonial economy cannot sustain profits at the same time as welfare.58
 
 

Notes                                                                             (Go to bibliography)
 
 

1 See Bryder, O'Brien and Wilkes, and Kelsey, 1995.

2 Permanent reserve army of unemployed is now widely recognised. See Report of Task Force ...; Shirley and others, and O'Brien and Wilkes

3 The passage of the Employment Contracts Act 1991 largely deregulated the labour market. For the new right case for labour market reform see Brook. cf Walsh; Harbridge; Dannin.

4 See Report of the Royal Commission... Vol 11. p 11, for a widely accepted definition of poverty as exclusion from "mainstream". On extent of Poverty see O'Brien and Wilkes and Rankin, 'Who's Getting What...'

5 On the impact of recent cuts up to 1992 see Boston, 'Redesigning...' Current spending on health, Education and Welfare is about 70% of social spending which in total is about 35% of GDP. HEW spending will erode in real terms (allowing for inflation and increased demand) over the next three years. (Budget... B 6A. p. 81).

6 See Douglas, Unfinished... also the Association of Consumers and Taxpayers's programme. See "Now is the time for all good men to think strategically - or self destruct". The Independent, 6 May, 1994, 12-13. Also `Rogernomics Phase Two: ACT plan reinstates NZ as the social laboratory of the world', The Independent, 4 March 1994 16-17.

7 See Budget ...tables and projections. On growth projections see Bayliss; and Edlin. On tax cuts, see " Budget Analysis", National Business Review, July 1, 1994.

8 The attack on welfare spending is now couched in the ideological camouflage of restoring individual self-reliance. The BRT advocates the privatisation of much of the welfare state including prisons. See Green. Cf. Pfaller and others, 'Can the Welfare state compete...'

9 See for example left or centre-left commentary such as Easton, The Making...; Commercialisation...;1989; Jesson, 'Disintegration...'; Holland and Boston; Boston and Dalziel; O'Brien and Wilkes; Kelsey, Rolling Back....; NZ Experiment; and Roper and Rudd. Kelsey, (Aoteraroa...) makes the claim that it is Maori opposition to restructuring that has been most significant. This claim rests on the success of Maori in reclaiming land and other resources unjustly taken in the past. However, from a Marxist standpoint, such success is relative to the historic gains of the ruling class. The Treaty of Waitangi 'process' reflects in part the strategy of the neo-liberals to co-opt Maori protest and devolve state welfare provision onto iwi and settle accounts at least cost to big business. To the extent that Maori have been coopted by the process of restructuring and privatisation to reclaim traditional assets as Maori business enterprise, the ruling class has been successful. (See Poata-Smith.)

10 Electoral Act, 1993 introduces a MMP or Mixed Member Proportional representation based on the German system with 120 members, half constituency and half list. See my discussion in Chapter on the Question of the State. (c.f. Mulgan,Politics...pp 301-308).

11 See Myers, D. "A Curse on the 'Nattering nabobs of negativism' in National Business Review, March 11, 1994. Also R. Kerr, 'Answering the critics: Privatisation is better', The Independent, 4^th February 1994, p.7.

12 Both Labour and the Alliance are moving to the right, but both are committed to defending the 'sacred cows' of the welfare state. Labour is likely to dominate a centre-left government and is moving in the direction of Blairite liberalism. See discussion in Chapter The Question of the State.

13 There exists much confusion about the differences between neo-Marxism and 'classical' Marxism. The essential difference argued here is that classical Marxists regard the labour theory of value, the tendency for the rate of profit to fall, and crises of overproduction as setting limits to the ability of the state to control the economy. (e.g. Roper, 'From Welfare State...' ; 'End of the Golden...') Neo-Marxists however, broadly reject 'economic determinism' and argue that the capitalist state is also subject to powerful political and ideological determinants. (e.g. Offe; Jessop; Wilkes, Reinventing...) I do not distinguish (see Chapter The Question of the State) feminist or anti-racist approaches to the welfare state as I think these are variants of either social democratic or neo-Marxist positions. (cf. Bryson, pp42-43; Du Plessis; Fraser.

14 See Marx on Ricardian socialism (1976: Chap. 1 part 4.) and discussion in Chapter In Defence of Marxism.

15 e.g. Sutch, 1969; B. Easton, 1980; Jesson 1992; Castles; Shirley; Boston and Dalziel; and St John.

16 For example Castles, (The Working Class....) classification of working class vs citizen welfare states, or Esping-Andersen's Social Democratic, Conservative and Reluctant welfare states. These classifications are overly empiricist and voluntarist (i.e. exaggerating the independence of the state to act within economic constraints). They obscure the basic economic determination of the universal KWS (Keynesian Welfare State) and its counter-cyclical, counter-crisis interventions during a period of national capital accumulation. Rudd's claim that NZ is a 'residual' welfare state in the face of its still central role as economic manager of NZ semi-colonial capitalism shows what absurd conclusions can be drawn from such empiricism.

17 See Boston, 'Redesigning...' and Rudd, 'The NZ Welfare....'. See also Culpitt.

18 See O'Brien and Wilkes, and Kelsey, NZ Experiment....

19 See David Green. Welfare State... Writing for the Business Roundtable, Green opens an attack on the welfare state as corrosive of the values of civil society and the family, and goes on to argue for a return to the market rationality of self-help with minimal state support for workers.

20 Pearce, Where is NZ Going and Roper, ('From Welfare...'; 'End of the...') abstracts from the concrete level of analysis required to explain the role of the KWS in "countering" crisis in the NZ semi-colonial economy. This ignores the high level of protection of at least 60% in the manufacturing sector in the 1970's (Wooding, p. 91). Given this abstracted analysis, Pearce cannot predict the form the crisis would take in NZ, in particular what impact the crisis will have on the state. Nor can he counter the state-centred arguments of social democrats or neo-Marxists such as Jesson, O'Brien and Wilkes, or Kelsey.

21 Further on reductionism and functionalism. Both are said to be elements of Marxism which invalidate it as a social theory. Usually reductionism is directed against an economic determinism in which relations of production are held to ultimately determine everything else. This position can be defended against those who claim that it is ideas that ultimately determine everything else. For example, revolutions involve ideas but they help to revolutionise actual relations of production and not the concept of social relations. Functionalism attributes social behaviour to the social system. Yet for Marxists the social system does not have the capacity for evolution or revolution. These outcomes are not predetermined but result from class struggle that is the "motor" of history. Hence reductionism does not mean an economic determinism which follows a functional cause-effect logic, but is rather a reference to class struggle over the relations of production at the point of production. (See discussion in Chapter In Defence of Marxism)

22 See Bedggood, 'Class Consciousness...'

23 See Clarke, (Marx, Marginalism...) for a Marxist account of marginalist economics. For a useful survey of neo-liberal ideology see Hindess. Freedom... See Boston and others (Reshaping...) for a social democratic response to Rogernomics. For a popular socialist response to Rogernomics see Socialist Alliance, Rogercomic…

24 For a neo-liberal text which attempts to popularise the reform agenda see Walker, Rogernomics. The ultimate prescription "Rogernomics Mark 2" is in Douglas, Unfinshed... and Prebble, Been Thinking.

25 See Jesson, Fragments...Chapter 8;

26 See Jesson, 'The Disintegration...'; Wilson, The Fourth...and Holland and Boston. On the 1990 Election see James, and Vowles and Aimer. On the 1993 election see Vowles and others.

27 This is a social democratic argument about 'welfare capitalism’. It implies that had democracy prevailed, resistance would have been stronger. Ironically, however it was more likely that the dependence of citizens on a paternalistic welfare state, and a state-managed union movement, that undermined organised resistance. This would explain why a Labour Government was so successful in implementing the reforms without massive resistance. (see Douglas, Unfinished... p.57-82.)

28 There are numerous accounts of this position on the foreign `takeover' of NZ, ranging from Sutch, Responsible...; Takeover...; to the recent attempts to explain the success of Rogernomics due to New Right takeover of Treasury and/or Government and introducing the 'wrong' policies. See Dalziel, 'Politics...; Kelsey, NZ Experiment..

29 Bill Sutch, (Takeover...) was one of the first to blame NZ's then economic crisis on foreigners. See also Jesson, (Behind....; Fragments...) and Bayliss, (Prosperity...) on the "ruling elite".

30 A range of agents for the transmission of new right ideas are put forward including, any, or all of, the invasion of Friedmanite ideas, Victoria university academics taking over the Treasury, Roger Douglas personal connections with big business, post-Fordism, the 1981 Springbok Tour, international capital, and so on.

31 See Boston and Dalziel, (Decent... Preface), for an explanation of how such radical neo-liberal reforms were possible. Also see Rudd ('Controlling... 'pp 50-53) for a social democratic analysis of the factors which put up barriers to spending cuts in health, education and welfare.

32 For a clear discussion of Keynesianism see Clarke, Keynesianism...

33 See Gough, Offe, Wright, Crisis...'Martin, State Papers....' ;Beilharz and others; Rudd, 'NZ Welfare...'; Wilkes, Reinventing...; O'Brien and Wilkes, and Kelsey, Rolling Back...; NZ Experiment... Not all of these writers explicitly acknowledge the neo-ricardian theory of value. But all see exploitation occurring during exchange. Jesson has had an influence on both O'Brien and Wilkes, and to some extent Kelsey. They explain the attack on the welfare state as part of the shift from "Fordism" to "post-Fordism". New Zealand's external dependency on export prices and foreign capital led to the deduction of surplus from NZ workers wages, to pay interest on debt, freight costs. When primary product markets and prices declined this led to rising debt, the "fiscal crisis" of the state, and hence the restructuring of the economy to open it up to "post-fordist" multinational domination. In reality the Model A Ford economy has not become post-Ford. While the Ford assembly plant at Wiri is to be closed down later in 1996, the aluminium wheel plant which makes wheels for the World Ford motor car remains very competitive because Comalco can use very cheap Hydro Electricity to smelt its Australian ore at Tiwai Point. For neo-Marxists this is an instance of the New Zealand economy being "ripped off" by the major economic powers and by multinational firms. The solution is to reclaim control of the local state and re-regulate the price of resources and the exchange rate to prevent indebtedness.

34 Neo-Marxists such as Gough and Martin view the social wage as an addition to total market wages without taking into account the question of productive labour. Hence attempts to cut the social wage are merely an extension of the distributional class struggle which sees capitalists deduct their profits from the value of wages. By cutting the social wage, capitalists can deduct greater profits. Martin follows Gough in collapsing the reproduction of productive and unproductive labour together (Martin, State Papers...p.37). This makes the state appear to be necessary for the reproduction of labour-power and minimalises its unproductive costs for capital. This makes the state a site for struggle over the social wage in the same way that the market is a site of struggle over the market wage. Cf Bullock and Yaffe, and Bullock, who explain that the cuts in the social wage are necessary to remove an unproductive cost as a drain on already falling profits.

35 The projection of the neo-ricardian pespective to global politics can be seen in Wallerstein, 'Utopistics...'; Amin, Capitalism...; Arrighi, 'Capitalism...' ; in Australia see Wiseman, Global...

36 See Wilkes,(Reinventing...) on the Class/ State relation, see Kelsey, (Rolliing Back...) on 'hegemony'. Martin, following Gough and O'Connor holds that state spending on the non-working population is a `functional' requirement to maintain `political stability' or 'legitimacy'. `Legitimacy' for neo-Marxists means the loss of state authority when it becomes clear that the state is not class-neutral. This occurs when the 'instrumental' state fails in redistributing national wealth from profits to wages. The loss of legitimacy produces a crisis of 'motivation’ (Offe) which can give rise to social movements to reclaim and re-legitimate the state, as a genuine instrument of class neutrality.

37 Claus Offe, Contradictions... As Mishra points out, the evidence does not support the functionalist thesis of the 'irreversible’ welfare state (103-105). The only way that universal welfare can be made `irreversible', thus resisting its minimalisation in the interests of a privileged caste of citizen is by means of working class resistance to welfare cuts. Offe's contradiction between 'society' and 'state' is a displacement of the more familiar neo-Ricadian contradiction between 'nature' and 'society'.

38 e.g. Offe, Contradictions... Chapter 8.

39 Kelsey, Rolling Back... 358-99; See also O'Brien and Wilkes, 173-184. Because neo-Marxists advocate struggle over the state rather than its overthrow, they remain trapped in bourgeois hegemony. They fail to point to the necessity of workers and their allies organising outside parliament to challenge state power. To that extent they disarm workers in the face of the capitalist state's ability to use the armed forces and to mobilise fascist paramilitary forces against the working class.

40 For a basic discussion on this point see Bullock and Yaffe, and Bedggood, 'Welfare state...'

41 See Beilharz and others, p 50. Ultimately, neo-Marxists must argue that falling profits are caused by rising wages (and social wage), or by a drive to maximise profits by driving down wages. In the former case they cannot avoid `blaming' workers for the crisis and accepting wage cuts as the solution. In the latter case, they cannot explain why the drive to maximise profits does not lead to permanent, as opposed to periodic, crisis, except by reference to a political power struggle which makes the state the ultimate site of economic class struggle.

42 What limits precisely? What degree of cuts to the 'sacred cows' will see the state facing a legitimacy crisis? Kelsey, drawing on Offe, argues that the attacks on the welfare state in NZ have already posed a `crisis of legitimacy', and a 'crisis of state autonomy'. However she does not specify any limit at which the 'needs of capital for a global, deregulated market economy' must stop short of destroying democracy and an `interventionist welfare state' (Rolling Back.... 347-364).

43 Historically fascism abandoned democracy to solve capitalist crises. Similar more recent examples are Chile 1973, and Peru 1993, where authoritarian, Bonapartist regimes displace democracy to impose austerity measures without producing terminal legitimacy crises, but temporarily resolving those crises at the expense of workers and the oppressed. (See Mishra, and Pfaller et.al.)

44 See Clark, The State....and my Chapter The Question of the State, for an account of the debate on 'relative autonomy'.

45 Marx's Capital Vol 1 Chapter 1, remains the best account of his theory of commodity fetishism. See also Rubin, Chapter 7. What is clear from Marx is that his theory of fetishism is much more scientific than Gramsci's theory of hegemony. Gramsci's theory makes hegemony dependent upon the superstructural reproduction of capitalism. Marx concept of fetishism shows that the ideology of bourgeois society is reproduced primarily at the level of relations of production. This is a major point of difference between Marxists and neo-Marxists.

46 See Bedggood, Rich and Poor...Chapter 9. The fetishised social relations of capitalism present individuals as equal buyers and sellers in the market. This requires a state to guarantee private property, contract law, freedom of association, speech etc. -i.e. bourgeois rights and freedoms. The individuals in the market therefore become political citizens to the extent that their `bourgeois rights' are represented in parliament. Hence bourgeois parliament is a second-order representation of commodity fetishism in that individuals are citizens because they are equal exchangers of commodities, and not as members of any social class.

47 For a good analysis of the capitalist state in the economy see Bullock and Yaffe. See also Bullock for an analysis of productive/unproductive labour and the state.

48 See Bedggood, Rich and Poor...Chapter 7.

49 This point is significant since it allowed capital accumulation in NZ manufacturing at lower levels of efficiency and productivity than would have been the case had protection not existed. While Pearce, (Where is NZ Going) and Roper, ('From Welfare...') argue that NZ manufacturing was internationally competitive they have not shown that levels of technology or productivity in NZ equalled that of their foreign `competitors'. In fact, the ability to accumulate profits, that under the law of value would have been redistributed internationally, helps account for the exceptionally high living standards in NZ resulting from the post-war/ settlement.

50 See discussion on differential rent in Chapter Glorious Countries... Briefly. Steven takes the discussion of differential rent in Macrae and Bedggood and extends it into a single-factor explanation of NZ's development. The ability of the welfare state to redistribute income [part of which was a state subsidy to farmers to compensate for high input costs due to protection] and allow a class compromise was at the expense of superprofits gained from the expropriation of Maori land. According to Steven the decline in those superprofits alone accounts for the decline in the economy and the welfare state.

51 Here I take the view of domestic labour as privatised, specific concrete labour that is outside the direct effect of the law of value. That is, while helping to produce a commodity, it is unproductive of surplus value. Similarly, state employed labour such as health or education workers, which reproduces productive labour-power is, following Bullock (p. 54-55) "productive labour of a special kind". i.e. productive of the commodity labour power, but not of surplus-value. Hence `semi-productive’. That is, like domestic labour, it is a specific concrete labour where the capitalists agree to use the state to partly 'socialise' and cheaply reproduce labour-power as a commodity, but without any individual capitalist extracting surplus value in the process. However under conditions of crisis and restructuring, much of this statised concrete labour is re-privatised as domestic labour at less cost because domestic workers cost less than state employees, or is re-commodified in the market under the direct sway of the law of value in the form of user-pays health, education, housing etc. (See discussion in Chapter on Domestic Mode...).

52 See Pearce, Where is NZ Going, Chapter 6; and Roper, 'End of the Golden...' p.11-21. While Pearce argues that NZ's post-war boom came to an end as the result of a classic TRPF caused by rising organic composition, he cannot actually demonstrate this. I put much more emphasis upon the limits of the domestic market on capital accumulation. This means that in effect it was lack of competition and demand that saw falling productivity i.e. the rate of surplus-value declining as much as the organic composition rising that caused the fall in profits under the locally specific conditions. Either way, however, it is inability of the capitalist to exploit workers enough which is the common cause identified by Marxists, rather than capitalists `over exploitation' of workers, which as neo-Marxists argue, causes capitalist crisis.

53 Including Equal Pay Act 1972; Accident Compensation Corporation 1974; Treaty of Waitangi Act 1975; Martin documents the rising proportion of social spending of GDP in the 1970's and Kelsey the declining proportion relative to GDP in the 1980's and 1990's.

54 See Murray, Corporate....pp 245-254 on links between corporations and the Labour government. See also Hugh Oliver,

55 See Culpitt's discussion of 'welfare values'.

56 Therefore job creation, universal health, education and welfare rights, equal employment opportunity, accident compensation, living retirement income which reproduce productive labour-power in excess of the markets requirements, are considered unproductive social expenses which must be cut.

57 This is contrary to social democratic institutionalisation, and neo-Marxist irreversibility thesis both of which pin their faith on the state to rally opposition. It is contrary also to 'sophisticated' Marxists such as Roper who combine both overproduction and under consumption theories of crisis in the absence of effects of protection (Roper, 'End of the Golden...' p :24). While it is true that crises of overproduction create under consumption on a world scale in the long run, local under- consumption is not the problem facing NZ capitalists today. They have no choice but to deflate the domestic economy to cut costs so they can compete for overseas markets. Reflating the domestic economy to boost local consumption is not a policy option open to any capitalist government.

58 Rudd asks why the crisis of the welfare state has not led to a legitimacy crisis as predicted by Marxists such as myself ('NZ Welfare...' p.242). The answer is that it takes more than an attack on welfare rights to expose the `relative autonomy' of the state and reveal its capitalist class nature. As argued above, the capitalist state's loss of legitimacy occurs not simply when it is exposed as acting to increase employers profits at the expense of wages, but when it is exposed as producing and reproducing capitalist social relations of production. This will not occur spontaneously, but as the result of Marxism revealing the hidden basis of exploitation and generating working class consciousness.

END