Robin Hahnel on Social Democracy

This has been sitting in the blog hopper for quite a while waiting for me to do something with it, but it's too good to send down the memory hole just because it's old. Via Ecodema, Robin Hahnel had an interesting article on social democracy at ZMag.

I mean it as a great compliment when I say that capitalism functions poorly indeed without social democrats. The "golden age of capitalism" was due more to the influence social democrats exerted over capitalism than any other single cause. Only when social democratic policies have been ascendant has capitalism proved able to avoid major crises and distribute the benefits of rising productivity widely enough to sustain rapid rates of economic growth and create a middle class. Political democracy in the twentieth century also received more nurturing from social democratic parties than from any other single source.

True as far as it goes. Corporate liberalism and European-style social democracy are solutions to state capitalism's crises of over-accumulation and underconsumption. But these solutions, in turn, lead directly to the crisis of under-accumulation and the fiscal crisis of the state. Each state intervention, spurred by crises resulting from previous state interventions, triggers still more crises that require further state intervention....

Capitalism, to the extent that it deviates from a free market, is a system of government intervention in the market to redistribute wealth to privileged classes. Besides shifting some of labor's product to pay state-enforced monopoly returns on land and capital, it subsidizes accumulation and corporate operating expenses. The result is the maldistribution of purchasing power remarked on by Hobson and Keyes, and the production of more goods than overbuilt industry can dispose of in a free market. To deal with these crises, the state adopts still more intervention in the form of a corporate liberal welfare state and social compact with labor, and through military and highway spending, etc., buys up more and more of industry's surplus product. But, as pointed out by James O'Connor and Paul Mattick, these policies lead to growing state budgets, chronic deficits, and an unacceptably high bargaining power of labor. As a result, industry has a reduced ability both to realize existing investments and to undertake further accumulation. The state capitalist elite's response: neoliberal reaction, which in turns leads to resumed income polarization and under-consumption, which leads..., etc., etc.

And since over-accumulation and under-consumption are the fundamental underlying tendencies of state capitalism, there are limits to the feasibility of neoliberal reaction. It is simply impossible to go back to pre-New Deal, or pre-WWI, levels of state spending without a depression that would disintegrate state capitalism. That's why the GOP, despite all its calls for "welfare reform" and union busting, is dominated by big government conservatives. Besides the basic crisis of over-accumulation, fiscal crisis and accumulation crisis are built into the system as secondary effects, as well. The state managers are left with a dilemma: how to ensure the aggregate purchasing power necessary to prevent overproduction, and spend enough money to make capital profitable, without creating 1970s-style stagflation. Since it's impossible to fully do both at the same time, the system is in permanent crisis.

Of course, the state capitalists are always tempted to try solving the crisis by abandoning market exchange altogether, acting through the state, and completely obliterating the distinction between private industry and the state. Fascism represented such an attempt, as described by Theodor Adorno.

Hahnel goes on to examine Michael Harrington's survey of the reasons for social democracy's strategic failure in the twentieth century. Among my favorites:

The Pitfalls of Gradualism: I think Harrington's third reason for social democratic failures is critical. He points out that even when social democrats realized they were "stuck with gradualism and all its attendant problems," and responded in the only sensible way -- "have socialists permeate the society from top to bottom" -- unfortunately they "overlooked one of capitalism's most surprising characteristics: its ability to co-opt reforms, and even radical changes, of the opponents of the system." (SP&F: 24) Harrington clearly understands the problem well. He points out: "Capitalists themselves were, in the main, not shrewd enough to maneuver in this way. The American corporate rich fought Roosevelt's functional equivalent of social democracy with a passionate scorn for the 'traitor to his class' who was President. Yet these same reactionaries benefited from the changes that the New Deal introduced far more than did the workers and the poor who actively struggled for them. The structures of capitalist society successfully assimilated the socialist reforms even if the capitalists did not want that to happen." (SP&F: 25)

Harrington underestimates the shrewdness of the capitalists, I think. A major part of the corporate liberal coalition, as described by G. William Domhoff, was capital-intensive, high-tech, export-oriented industry. Just Google "Gerard Swope" and you'll see what I mean.

And the co-optation of "progressive" intellectuals goes back a lot further than the New Deal. The managerial New Class had been incorporated as overseers of the newly corporatized economy in the late 19th century. And by the "Progressive" Era, Crolyite social engineers and wordsmiths had been entirely co-opted as useful idiots for organized capital.

Global Capital Markets: The 900 Pound Gorilla: Finally, Harrington tells us social democrats were "utterly unprepared for the internationalization of politics and economics that has been one of the decisive trends of the twentieth century." (SP&F: 25) In particular Harrington blames the failure of the socialist government of Francois Mitterrand in France in the early 1980s primarily on hostile global capital markets. "The failure of the bold plans of the Mitterrand government in 1981-82 were caused, above all, by an open economy that had to bow to the discipline of capitalist world markets rather than follow a program that had been democratically voted by the French people." (SP&F: 27) The extent to which social democratic reforms in a single country can be vetoed by global financial markets in the neoliberal era is of great importance to consider carefully.

A mushrooming pool of liquid global wealth -- created by record profits due to stagnant wages, downsizing, mega mergers, and rapid technical innovation in computers and telecommunications -- is now more free to move in and out of national economies at will than at any time in history.... Neoliberal global managers have literally created the financial equivalent of the proverbial 900 pound gorilla: Where does the 900 pound gorilla -- global liquid wealth -- sit? Wherever it wants! And when a derivative tickles, and savvy investors -- who realize they are functioning in a highly leveraged, largely unregulated credit system -- rush to pull out before others do, currencies, stock markets, banking systems, and formerly productive economies can all collapse in their wake. What this does, of course, is give international investors a powerful veto over any government policies they deem unfriendly to their interests. If neoliberal global capitalism could trump Mitterrand's program in an advanced economy like France that was not facing international bankruptcy in the early 1980s, and forced the most powerful of all social democrats in Sweden to abandon their reforms in the late 1980s and early 1990s, what hope is there for social democratic programs that attempt to spur equitable growth in bankrupt third world economies facing even more powerful global financial markets and an even more implacable IMF in the early twenty-first century?

This is something Immanuel Wallerstein has commented on as well. So long as capitalism functions as a world system, any would-be non-capitalist system on the scale of a single country will be incorporated into the capitalist world-system. No matter how anti-capitalist a Latin American firebrand may be, his first order of business will be meeting the men in suits from the World Bank and IMF. (And I say this without much sympathy for the kinds of "anti-capitalists" that Hahnel and Harrington describe: social democrats and other statists. But a Tuckerite free market, were it to become the dominant anti-capitalist paradigm in the Third World, would sound the death knell of neoliberal corporate capitalism with far more finality than anything Lula or Chavez can come up with.)

Of course, Hahnel and Wallerstein both probably exaggerate the problem because they share unwarranted assumptions about the role of technical imperatives in economic centralization. A decentralized economy applying the latest biointensive techniques to subsistence farming, adopting intermediate-scale technologies, and producing most of its manufactured goods in the kinds of small, multi-use factories described by Kirkpatrick Sale and Murray Bookchin (see The Superior Efficiency of Small-Scale Organization), could probably function quite well with greatly reduced inputs from the developed world. There is, however, some value in coordination between a number of such countries, in order to reduce their political isolation. I've written about it before (The Revolution is Not Being Televised).

In another interesting passage, Hahnel describes the limited effectiveness of reforms in workplace governance, when the "socialized" workplace not only functions within a global capitalist financial system, but is under the same corporate management it was before:

Proclaiming themselves different from social democrats elsewhere in Europe who had long since abandoned nationalization, the French socialists went through with an impressive list of nationalizations they had promised during the election campaign. Again the courage displayed by the nationalizations is hard to fault. However, besides the fact that many of the companies they took over were much weaker than they realized, two other problems limited benefits from the nationalizations. Harrington tells us: "At the cabinet meeting at which the decision was made to go ahead with the nationalizations, there was a fateful debate that pitted Michel Rocard, Jacques Delors, and Robert Badinter against most of the rest of the ministers and, the decisive factor, against the president. There is no need, Rocard and Delors argued, for Paris to pay for one-hundred percent of an enterprise that is targeted for government ownership. Fifty percent is quite enough -- and much less expensive. But Mitterrand went ahead with one-hundred percent buy outs." (NL: 136-137) Harrington points out that the consequences were not dissimilar to corporate takeovers with borrowed money in the United States -- "the acquired company had to be starved for cash in order to finance its own acquisition." (NL: 137) The second problem, how the newly nationalized companies were managed, was caused, in part, by the first. Harrington quotes from a letter sent to the new administrators which said: "You will seek, first of all, economic efficiency through a constant bettering of productivity. The normal criteria of the management of industrial enterprises will apply to your group. The different activities should realize results that will assure the development of the enterprise and guarantee that the profitability of the invested capital will be normal." (NL: 136-137.) In other words, the new managers were given marching orders no different than those stockholders would send to a CEO they had just hired! Harrington goes on to tell us: "Alain Gomez, a founder of the Marxist left wing of the Socialist party, CERES, and a new official in the public sector, was even blunter: 'My job is to get surplus value." (NL: 136)

The problem is, of course, that if capitalists are paid the full present discounted value for their assets, and if nationalized enterprises are managed no differently than private enterprises, the only thing that will change is who employees and taxpayers will resent. Instead of resenting greedy capitalists they will resent the "socialist" government, the "socialist" ministers, and their new "socialist" bosses. Like Harrington, I can understand this is easier to see from the outside free from budgetary and managerial pressures, but it is true nonetheless. Moreover, the government's efforts to promote decentralization and worker participation were no more successful in state enterprises than in the private sector. Harrington tells us: "Although the Auroux laws were unquestionably progressive, they fell far, far short of the ideal of self-managed socialism. In essence, the workers were given the right to speak up on issues affecting their industry -- which was a gain -- but they got no power to make decisions. One of the consequences of genuine worker control is that productivity goes up. But given the extremely limited nature of the workers' new rights -- and the mood of moroseness that settled over the society not too long after the euphoria of May 1981 -- that pragmatic bonus from living up to an ideal was not forthcoming." (NL: 137) Unfortunately the administrators of newly nationalized enterprises who received the letter quoted above were no more inclined than their counterparts in the private sector to accede power to make decisions to their employees from whom they were busy extracting "surplus value."

I've commented on the same problem as faced by cooperative enterprises in a larger capitalist economy. Unless they can build a mutually supporting network of production, consumption, and financial entities--in effect an embryonic system to supplant the old one--they are certain to be coopted into a capitalist framework.

As far as social democracy goes, this shows another weakness of that ideology: its managerialism. Social democracy is, fundamentally, an ideology of the New Class. The co-optation of "progressive" intellectuals so sorely lamented by Harrington and Hahnel says something, not only about their naivete and the cunning of the capitalists, but of their own mendacity as well. It's a lot easier to con a greedy man. And from the beginning, the New Class' idea of do-goodism has entailed giving themselves a lot of power to regiment and plan everybody else "for their own good." As Hilaire Belloc predicted, if "progressive" intellectuals were given an outlet for these authoritarian instincts within the state capitalist system, in effect hired as overseers for the capitalists, they would forget most of their big ideas about expropriation and other major structural changes. They would quickly redefine the interests of the "working class" to suit whatever was feasible within the existing system, with themselves running it.