Friday, 19 June 2015

Britain Has a Debt Problem - All the More Reason to Fight Austerity

The British state has a debt problem and this makes rejecting austerity all the more important. The conjunction between the two statements here is by no means contradictory. It is customary on the left to deny the fiscal crisis of the state, but there are real limitations to its capacity to sustain social expenditure given the pronounced power of capital. The march against austerity in London today might be the first step to concretising the belief that much more needs to be done than establishing popular support for the state in its current form.

Across the advanced economies of the capitalist world deep public indebtedness has become the norm (rising sovereign debt characterises the thirteen advanced economies in this IMF paper). What is the result of rising public indebtedness? Almost always the response of the capitalist state to fiscal strain is contraction. The result, in turn, of that contraction, is further unbinding of the already frayed tethers of social solidarity between groups in capitalist society.

What does it really mean to talk about a fiscal crisis of the capitalist state? In the abstract it means very little. We need to be more specific: which capitalist state, at which level of indebtedness, and in which period of historical development? We can loosely measure these changes by looking at the institutions of both the state and what is commonly called "civil society." Since the 1970s the political economies and societies of the advanced capitalist west - although especially the USA and Europe - have undergone astonishing changes. At every level the embededness of capitalism in domestic economies has been eroded, as capitalist firms have become increasingly willing to internationalise their activities. At the same time the various mediating institutions between capital and labour have seen their influence either shrink to a core (as in Germany) or become downgraded altogether (as in the Anglo-Saxon economies of the USA and the UK). This has necessitated a change in priorities for trade unions and works councils, from a macro, sectoral focus to a micro, firm-level focus of collective bargaining and worker protection. Precariousness and peripheralisation have become the norm outside of key sectors. Additionally, and crucially, the states of these countries have struggled to keep their social commitments, coming under increasing pressure to lower taxes, whilst at the same time having to shield populations from the ravages of growing unemployment and redundancy. Inevitably, given the balance of social and political representation in the state, it is social commitments that are downgraded. These long-term, secular developments are co-determining. As the influential sociologist Wolfgang Streeck argues1, there is no single class or sectoral driver to these changes. These processes are driven, of course, by the social actors of capitalism, but they are mutually reinforcing and equally unbalancing.

It follows from Streeck's argument that rising public indebtedness is a symptom of the steady decline of government tax intake and the growing instability of employment in contemporary advanced economies. Moreover, as the economist James Galbraith argues2, there may be no return to high growth, which would increase employment despite the fiscal binds on the state, because of resource cost volatility, financialisation and the exhaustion of the technological and productivity-increasing means of job creation. We may now be living in a low-growth world, where what little growth there is does not fuel job creation on anywhere near the necessary scale.

This paints a very bleak picture for the Keynesian prescriptions that are the common alternative to fiscal contraction - in other words, austerity - and labour market liberalisation. Keynes's argument was one based on psychological assumptions very different to those of classical and neoclassical economists. He described how the proportion of income not given over to consumption would become savings and was in aggregate identical to investment. This was the key to continuing growth in employment, the conclusion being that a shortfall in demand - in the form of goods for consumption and new investment - could prevent growth in employment. Economies could stagnate - and unemployment remain above its potentially lowest point - because of an absence of demand.3 By stimulating demand - primarily in the form of deficit spending, but also tax cuts and lowering interest rates - the government could create new employment, growing income/output, and therefore economic growth. In theory it remains possible for the state to do this (after all, there are no absolute limits to capitalism only relative ones). The argument against a purely Keynesian policy program is the institutional, social and political context. Even if the institutional capacity for a Keynesian revival led by the state exists (as perhaps it may in the United States), the kind of technological take-up characteristic of the ensuing boom would not necessarily drive job creation. Service economies, no matter how high-tech, do not produce the same kind of mass employment as heavy industrial economies. Moreover, with ongoing financialisation of capital and the internationalisation of regulatory structures (including the US state and its many free trade agreements, the EU and its many treaties, the IMF and so on), it is not at all clear that the reduced power of national governments could sustain a reverse course for very long. This argument applies especially to the UK with its heavy reliance on financial services, its low productivity growth, its high degree of de-industrialisation, and the pronounced weaknesses of the tax system.

None of this proves the fiscal moralising of the deficit hawks right, however. The theory of contractionary expansion has long been proved a delusion, if it really ever held intellectual water. Keynesian stimulus can be part of a broader alternative to austerity - but it cannot be the only pillar, since it relies somewhat narrowly on the short-term psychological expectations of investors and the underlying belief that any animated "animal spirits" can generate the right kind of growth. The Keynesian policy toolkit is just that - a set of instruments which needs to be put to the right political uses.

What, if not growth alone, would amount to an adequate challenge to austerity? Only a concerted effort of the social will can begin - slowly - to reverse the decades-long evolution of advanced capitalism. Because these secular tendencies are multi-layered, only a multi-faceted effort - working at every institutional level of the state and civil society - can begin this work. Society does not have infinite resources for this task, and defeat is a possibility if not quite a likelihood. However, it is vital that we use our efforts to build concrete institutional powers. Protest is a high-visibility response, but it can sometimes leave no lasting trace. Our presence needs to be felt in institutions - primarily the staid "core" union structure, as well as in the new "peripheral" unions that seek to protect the more precarious sectors of the economy. Struggles need to be built around housing and immigration; urban destruction and resource exploitation; feminism and minority rights. It is a tall order, but happily this multi-faceted opposition - stretching well beyond the state - reflects already the political logic of austerity capital, which outsources "creative destruction" onto the different levels of the social fabric.

We cannot win by opposition to cuts alone - since that leads to a tunnel-vision focus on state power and the Keynesian alternative to austerity. Instead, opposition to austerity capitalism and what Streeck calls the "consolidation state" must stretch across society, identifying its own causes - anti-racism, feminism, social solidarity - with the continued existence of the very fabric of society. At present capitalism and the capitalist state are wrecking society. The opposition must, in the end, seek to hegemonise society and direct it against the power of capital.

1See: Streeck, Re-Forming Capitalism: Institutional Change in the German Political Economy (2010). In the German case he says: "The liberalisation of the postwar German political economy was not an act of strategic institution-building governed by business in alliance with a competition-conscious nation-state. Rather it took place in a steady process of disorganisation... in the form of a gradual decomposition... from below." (p.255)
2See: Galbraith, James K., The End of Normal (2015) He says: "There will be no full recovery of demand. And even if there were, price volatility in the resource markets and the development of yet more labor- and capital-saving technology would soon choke it off." ( p.241)
3See: Keynes, The General Theory of Employment, Interest and Money (1936) where he argues: "The mere existence of an insufficiency of effective demand may, and often will, bring the increase of employment to a standstill before a level of full employment has been reached." (Kindle Loc: 396-98)

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