Neoliberal Regimes, "A Turnning Back of the Clock"

The end of Capitalism's "Golden Age"

By Prabhat Patnaik

Neoliberal regimes reflect the supremacy of financial interests, are run on the principle that what is good for finance is good for the economy (and conversely that the interests of the economy are best served by serving the interests of finance).

Capitalism enjoyed a boom for nearly two and a half decades from the beginning of the 1950s, the like of which, over a comparable period, it had never experienced in its entire history.

With the unemployment rate down to unprecedentedly low levels, the workers were in a position to gain wage increases in tandem with productivity increases which were steep because of the rapidity of growth.

These wage increases, together with the Welfare State measures through which State expenditure was injected into the system (in addition, of course, to military spending in the U.S.

This was back-door State intervention. American spending on defense meant a significant improvement in the condition of the workers.

This improved state was widely considered at the time to have become a permanent feature of capitalism, a durable phenomenon from which further improvements were possible but there was no going back.

So firmly entrenched was this belief that several distinguished writers (including even John Strachey, at one time a front-ranking British Communist thinker) expressed the opinion that "capitalism had changed".

Two factors brought the so-called "Golden Age of capitalism" to an end.

The first was an inflationary upsurge, triggered by a money wage explosion that occurred all over the metropolitan capitalist world in 1968.

The precise sequence of developments that underlay or preceded this wage explosion need not detain us here, but it brought home the point that capitalism could not operate for long with such low levels of unemployment.

True, the higher wages made possible by such a small size of the reserve army of labour could be accommodated without either hurting the share of profits in the gross value of output.

Neither could it cause inflation (which arises when profit-share in gross value of output is sought to be protected), if the terms of trade could be turned against the primary producers, so that their share in gross value of output could be correspondingly squeezed.

But even if this could be done, as indeed it was and also to some effect since the inflationary upsurge came down proximately because of it, the capacity of this factor to sustain low unemployment had become severely restricted.

This was because the share of primary commodities, other than oil, in the gross value of output in metropolitan capitalism had already become quite minuscule, given the long history of past squeezes on the primary producers.

And oil prices were protected by a cartel, which, far from allowing a price-squeeze, administered to the world on the contrary an oil-shock, the first of its kind, in 1973.

Even the unequal world economic arrangement, spawned by imperialism, in other words, was no longer adequate to sustain for any length of time the levels of unemployment witnessed during the "Golden Age".

Such levels of unemployment achieved through State intervention made the system dysfunctional and presented to it two alternative possibilities:

State intervention had either got to be intensified, with intervention in demand management being supplemented additionally by intervention in the form of a prices and incomes policy; or it had to be reduced.

The initial "improvement" in short had given rise to the possibility of two alternative dialectics.

Given the balance of class forces, the dialectics of subservience to the logic of capital, which meant a retreat from Keynesian demand management and a triumph of "sound finance."

This was the cornerstone advocated by monetarism, with its fall-out in the form a much larger reserve army of labour, a weakening of trade unions, and a significant increase in the share of profits in GDP at the expense of wages, became the order of the day.

Our second "spontaneous" development contributed to the triumph of this dialectics of subservience to the logic of capital. This was the "globalization of finance" brought about through the process of centralization of capital.

The enormous accumulation of finance during the period of Keynesian demand management itself had created pressures for easing cross-border capital flows which had been restricted under the Bretton Woods system.

Keynes himself had been acutely aware that any economic intervention by the nation-State (other than in accordance with the dictates of finance capital) could not be sustained if finance was supra-national.

Advanced capitalist countries eased cross-border capital flows during the decade of the sixties, creating problems for "demand-management regimes", in Britain starting from the days of Harold Wilson's government and in France during the Mitterand Presidency in particular.

The neo-liberal regimes that have followed in the metropolitan capitalist countries since then (it is only very recently that they have been jolted by the world crisis and some intervention has once again come on the agenda).

They have been extended to the world at large, including to the third world, corresponding to the era of ascendancy of international finance capital.

They reflect the supremacy of financial interests, are run on the principle that what is good for finance is ipso facto good for the economy (and conversely that the interests of the economy are best served by serving the interests of finance).

These neoliberal regimes are marked by higher unemployment rates on average (even before the current crisis), a decline in the share of wages in value added (and even an absolute stagnation of late in real wages of workers in advanced countries), and a rolling back, wherever possible, of Welfare State measures.

In short, they represent, in varying degrees, a turning back of the clock, caused by the fact that the "spontaneous" tendency towards centralization of capital has given rise to the phenomenon of hegemony of international finance capital.

The belief that "capitalism has changed" which marked the post-war years of Keynesian demand management has been belied as the "spontaneity" of the system has once again asserted itself.