Neoliberalism: consequences and alternatives

Brutal neoliberalism and austerity are fuelling mass anger – the growth in Trump-style populism one of the consequences. In response, a recent book advocates a return to New Deal-style reforms and the post-war policies of state regulation – points echoed by Bernie Sanders and others. But, as TONY SAUNOIS explains, capitalism’s room for manoeuvre is far more limited today, making the case for socialism all the more urgent.

Can Democracy Survive Global Capitalism

By Robert Kuttner

Published by WW Norton & Company, 2019, £12.99

Robert Kuttner’s book is one of many by commentators and academics in recent years giving a devastating balance sheet of the consequences of neoliberal policies. Yet, like many, he has not been able to draw a rounded analysis and alternative from the data he has published. He graphically contrasts two eras of global capitalism: the post-second world war boom up to the mid-1970s; and what has followed since. In particular, he gives a stark account of what the neoliberal era has meant worldwide – economically, socially and politically. He reveals the increasingly authoritarian and undemocratic features of modern-day global monopoly capitalism. The book largely centres on developments in the US and the EU. He rightly regards the latter as a neoliberal, pro-capitalist institution.

Kuttner recognises the unprecedented economic growth that lasted 30 years in the post-war period, which he describes as “egalitarian capitalism”. The figures he gives illustrate the scale of what took place – in Europe and the USA, but not in the neo-colonial world which suffered brutally at this time. In one generation after 1945, real per capita income in Europe increased by as much as it had in the previous 150 years! Correctly, he argues that this era was a “brand of capitalism unlike anything the world had ever seen”.

In contrast, Kuttner produces figures to illustrate the social and class polarisation that has engulfed US society during the past few decades. The plummeting expectations and living standards have largely shattered any reality to the American dream. Young people who enjoyed higher living standards than their parents declined from 92% during the post-war boom to less than 50% of those born in 1984. By 2017, almost half of young adults reported that their parents helped them with monthly rent, with subsidies averaging $250.

A collapse in trust and confidence in political parties and government institutions has been gathering pace for the last 50 years. In 1958, 73% of Americans said they trusted the federal government to do the right thing “just about always or most of the time”. That figure peaked in 1964, at 78%. It has been declining ever since. By 2015 it had crashed to just 19%. This erosion of the state’s social base is a potentially explosive situation, extremely dangerous for the ruling class. This process, together with the lack of an alternative, is a factor in allowing Donald Trump to step into the vacuum. As Kuttner points out, Trump’s victory was not necessarily a reflection of support for his policies. In one poll, only 29% said they liked his policies; 50% wanted to “shake up the political establishment”.

Kuttner also exposes the role of the European Union in driving through neoliberal policies and imposing privatisation on EU governments since the single market was created. In 1991, a directive was issued requiring EU nation states to allow substantial private competition on national rail networks. Others followed: electricity and gas in 1996; post and telecom services in 1997, 2002 and 2008; and, subsequently, a requirement for all member states to devise deregulation timetables, to open up these networks to private operators.

The consequences for workers have been disastrous. Thirty-four thousand jobs have been lost in the postal sector in the Netherlands alone. Since privatisation, pay in the postal service has fallen on average by 40%, in Germany by 30% since 2001, and in Austria by 25%. Kuttner graphically uses these and other facts – including the brutal austerity imposed on the Greek working and middle classes – to expose the role of the EU. However, he wrongly implies that the European Economic Community, the EU’s predecessor, was better when it was created in 1957 – during an entirely different era of capitalism.

Kuttner strongly denounces political leaders like Tony Blair for embracing the ‘third way’, and capitulating to neoliberalism. He emphasises the role that Bill Clinton played in this process, firstly by turning the Democrats – always a capitalist party – towards the right. Clinton, he comments, ended up “moving left on cultural and diversity issues, while he moved to the right on economic ones”. By 1996, Clinton had declared that “the era of big government is over”. Philip Gould – one of Blair’s top strategists – travelled to meet Clinton, while others worked on Clinton’s campaign. Gould later wrote that “the Clinton experience was seminal for the Labour Party”. Kuttner quotes Margaret Thatcher boasting that her greatest achievement was New Labour; something we have highlighted many times before.

Falling living standards and growing mistrust of ‘the establishment’ are the social ingredients for massive class battles to challenge capitalism. Kuttner correctly points to this decline as flowing from the processes that began in the 1970s: the growing globalisation of the world economy, and a conscious policy by the ruling classes in the USA and Europe to end the post-war ‘social consensus’. The consequences of what has been stolen from the working class are driven home in hard-hitting fact after fact.

Enter populism

The opening chapter, A Song of Angry Men, dealing with events in the USA prior to and during the 2016 election campaign, is highly revealing. In particular, Kuttner examines the conditions of the white working class. He argues that this section had declined from 83% of the total electorate in 1960, to 70% in 1980, and just 34% in 2016. Here, he is basing his definitions on the traditional sections of the working class in manufacturing industries, excluding new layers employed in logistics and other sectors.

He also does not address the increasing ‘proletarianisation’ of former sections of the middle class which, as a result of their declining conditions, are beginning to embrace the methods of struggle of the working class. This had been anticipated by Karl Marx and has featured in the analysis of the CWI. Nonetheless, he correctly makes the point that, while this is the national figure, in all the key Midwest states – Ohio, Indiana, Iowa, Missouri and Wisconsin – white working-class voters exceeded 60% of the electorate!

The Democrats had nothing to offer those who had been devastated economically and were left feeling alienated, burning with hatred. Kuttner is right to argue against the identity politics embraced by Hillary Clinton: “Try demanding ‘check your privilege!’ to white workers facing collapsed communities, declining earnings, and fading prospects in West Virginia or Michigan or Ohio. You can make a case that white men are privileged, on average, relative to blacks. But that misses the political point. Non-elite white men are getting economically clobbered. There is plenty of privilege in the economy, but it mainly resides in the top few percent – whose extreme privileges were not much part of the 2016 debate once Bernie Sanders was eliminated”.

Beginning in the 1990s, attacks on the conditions faced by the white working class resulted in declining life expectancy – the first time since the great depression of the 1930s. This fall in living standards, and Clinton’s right-wing programme – accompanied by embracing “aggressive cultural liberalism” – resulted in a collapse in support among blue-collar Democrat voters. Every one of the 493 wealthiest counties supported Clinton. A clear majority of the remaining 2,623 went for Trump.

The pernicious role of identity politics and how it is used by the right is revealed in the book. In an interview quoted by Kuttner, former Trump advisor Stephen Bannon spells this out: “The Democrats, the longer they talk about identity politics, I got ’em. I want them to talk about racism every day. If the left is focused on race and identity, and we go with economic nationalism, we can crush the Democrats”.

Socialists and workers need to combat racism, sexism and discrimination against women, LGBTQ+ people and all oppressed groupings in society. However, this must be done on a class basis, aimed at uniting all those oppressed and exploited by capitalism, rather than fostering division and separatism. The capitalist Democratic Party and others are incapable of doing this. Buckling to the separatist pressures of identity politics is something that all socialists must combat.

Reform capitalism or replace it?

What Kuttner fails to do is offer a viable alternative to neoliberalism and, specifically, to the capitalist system. He dismisses Karl Marx as a “pessimist” among other things. He argues that the ‘command economy’ – the term he uses for the bureaucratic Stalinist dictatorships based on nationalised planned economies, in the former USSR and eastern Europe – failed to offer an alternative to capitalism. The market is more efficient, he claims. Kuttner reflects the analysis propagated by the ideologues of capitalism, which fails to explain the dramatic growth and development that took place in the USSR, transforming it from a country with similar conditions to much of the neo-colonial world to a world superpower.

Despite the corruption, bureaucratic mismanagement and repression, the planned economy resulted – for a period – in a narrowing of the gap between the USSR and the major capitalist countries. Premier Nikita Khrushchev boasted in 1956, in remarks aimed at the western capitalist leaders: “We will bury you”. His threat was a reflection of the economic growth of the 1950s and 1960s. The USSR’s national income rose by an estimated 160% between 1955 and 1960 – three times faster than in the US, 1950-55.

By the 1970s, this had changed. The Stalinist bureaucracy was a fetter. In particular, there was a failure to move from the traditional smokestack industries to apply new technology and computers, which the bureaucracy feared would lead to them losing control. The dramatic slowdown that followed culminated in the collapse of the Stalinist bloc in the 1990s. In the rush to discredit the whole concept of a planned economy, however, Kuttner (like his contemporaries) brushes aside the real developments that were achieved.

Instead, Kuttner offers the reader the utopian idea of returning to some ‘golden age’ of post-war stability and economic growth, which “leaves space for national democracies to manage capitalism in a broad public interest”. He concludes: “Today’s capitalism is both undemocratic and anti­democratic. Post-capitalist democracy, with new forms of social economy, could survive and even thrive”. More regulation and state intervention, and a new, unspecified form of ‘social economy’ – distinct from the state ownership of the post-war era – are his solution.

This should be achieved, he says, by national ‘democracies’ reasserting control over the modern, unfettered capitalism of the neoliberal era. Democracy for him is an abstract concept, detached from class interests or the struggle between the classes. He presents a set of utopian ideas based on the false precept that it is possible to manage capitalism in a more humane and efficient manner.

He correctly lambasts the consequences of globalisation, which has integrated the world economy and concentrated power into a numerically-dwindling class of super-rich capitalists at the expense of the mass of the population on the planet. Despite the extremely high degree of integration of the economy – in some respects, unprecedented – capitalism has not been able to fully overcome the limitations of the nation state. The process of globalisation is now being checked, and partially rolled back in some areas, as each national ruling class takes steps to defend its own interests in the face of growing crises. This is illustrated by trade conflicts and wars, the crisis within the EU and eurozone, and other emerging international tensions. A new era of capitalist conflict and crisis has opened post 2007-08. Kuttner’s solution is to be teleported back to the post-1945 golden age.

Policy option or system consequence?

What Kuttner does not understand is why capitalism has reverted to a more brutal form of exploitation. He wrongly sees it as only a “policy option”. He refers to the post-war economy as though it were a fundamentally different social system to capitalism. He argues that different policy options were possible for the ruling class, and could have avoided the devastation of neoliberal policies. Kuttner dismisses Marx on the basis of a crude interpretation: that the sole cause of capitalist crisis is the fall in the rate of profit, including the causes of the end of the post-war boom. This is something neither Marx nor the CWI have argued. Kuttner argues that it is formalistic to root neoliberal reforms in the changed era of capitalism and its inability to maintain the post-war “social consensus”.

Kuttner, in essence, pleads for a return to a time of “managed capitalism”, regulation (especially of the finance sector) and state intervention. He draws upon the experience of the New Deal implemented by US president Franklin D Roosevelt in the 1930s, following the crash in 1929. Here, he justifiably compares what was done with the bank bailouts following the 2007-08 crash and what was undertaken as part of the New Deal. This is important, as Bernie Sanders also draws on this as an example of what ‘socialism’ means for him: state investment, regulation and more democratic control of capitalist institutions. These points are echoed by Jeremy Corbyn in Britain, Pablo Iglesias in Spain, and others.

Following the bailouts in 2007-08, billions were handed to the banks to avert a total financial collapse. However, this is not comparable to what was undertaken by Roosevelt, both to stimulate the economy to avert massive social upheavals and to intervene in the second world war. Public works programmes in electricity, dams, transport, housing and other programmes were introduced. New infrastructure was developed on a massive scale throughout the US. The publically-funded Reconstruction Finance Corporation (RFC) injected $50 billion to re­capitalise industry. RFC representatives were appointed to company boards. As the US prepared for war, $9.2 billion was invested in 2,300 war production factories across 46 states. These were massive amounts at the time.

The Keynesian measures adopted were then followed in post-war Europe, boosted by the US’s Marshall Plan aid package. This played a crucial role in rebuilding the global capitalist economy, and opened the era of historic growth which followed the devastation of the war and the destruction of productive forces. During this time of capitalist expansion, the system could tolerate and afford previously unprecedented reforms in Europe, the US and other industrialised capitalist economies. However, these were conceded by capitalism due to a combination of the strength of the workers’ movement and the capitalist classes’ fear of revolution following the end of the war. The fact that capitalism had been abolished in Russia and eastern Europe, offering a glimpse of the potential of a planned economy, further strengthened the workers’ hand.

Kuttner recognises that the post-war era had ended by the 1970s. He pinpoints 1973 as a turning point. Yet he imagines that it is possible to simply return to it, with the re-adoption of Keynesian policies. lt is true, of course, that the application of the austerity programmes following the 2007-08 crash have enormously aggravated the depth of the capitalist crisis. It is also possible that, faced with a renewed recession, the threat of social upheavals and revolution, the capitalist class, or sections of it, will revert to Keynesian policies. For a temporary period, such measures may avert an economic crash and give some limited concessions to the working class. Nonetheless, such measures would be applied in a different era to post-1945, when capitalism was entering a time of economic development. This is not the case today.

Capitalism needs an expanding market, and that does not exist on a global scale now. Kuttner does not address this contradiction. Any concessions will not be long-lasting – what will be given with the left hand will be taken back by the right. Incredibly, he dismisses Marx for failing to recognise that capitalism is a very “flexible system”, even though Marx explained many times how capitalism adapts to face new demands and contradictions.

Two eras of the workers’ movement

Kuttner points out that, during the New Deal, a massive growth in trade union membership took place in the US. For example, the United Auto Workers’ rose from 165,000 members in 1939 to over one million by 1944. At its peak, unionisation in the US reached about a third of the workforce. In most European countries there was also a massive strengthening of the unions. The percentage of union organised workers reached record levels – over 50% in many countries, and up to 90% in Scandinavia and northern Europe.

Kuttner rightly features the assault on unionisation, outsourcing, the effects of globalisation and precarious working. They have all had a devastating effect on wages and conditions. The figures he gives on the decline in wages are very revealing. He points out the correlation between the percentage of workers covered by collective contracts and those receiving a low wage – defined as less than two thirds of the median wage. In Denmark and France, over 80% of workers have collective contracts, with low-wage levels at 8% and 11% respectively. In Germany, where 60% of workers are covered by labour agreements, low wages rise to 22%. In the US, collective agreements cover 12% of workers, and over 25% are in low-wage work.

The numerical weakening of the trade unions is a crucial question for the working class and revolutionary socialists. This, and the absence of a strong, combative layer within the movement, has been used by some on the left – including former CWI members – to justify turning away from these still-crucial mass organisations. In Germany, the percentage of workers organised in trade unions has fallen by approximately 50%, to just 18% of the workforce. In Britain, it stands at around 23% of the overall workforce and about 12% in the private sector.

This represents a big decline. However, the post-war situation was the exception under capitalist society. In most countries, the current levels of unionisation are not very different to what they were in the pre-war period. Even so, workers in potentially key sections of the economy remain highly unionised, despite the overall decline in manufacturing industry. At the same time, new layers – in logistics, airlines, call centres, food distribution and others – are taking the first tentative steps to organise and build trade unions.

Other, formerly middle-class layers, like the junior doctors in the UK, have embraced the traditional methods of working-class struggle. Big obstacles need to be overcome to build trade unions among these new layers. However, the strikes at McDonald’s, Deliveroo, Uber, Google, Amazon and others are an important pointer to building the unions within these sections. The small but significant growth of trade union membership in the US is an extremely important first step. In 1932, only 7% of the workforce was organised in trade unions. Just over a decade later this had increased to almost 33%!

Kuttner makes an important point in relation to US society that has been mirrored in some European countries: that it is not only the trade unions that have declined. All civic organisations and political parties have suffered the same fate, especially in the era of neoliberalism. Spanning a variety of social, self-help and semi-political organisations, 59 national federations of local groups with at least a million dues-paying members existed at their peak. By the mid-1980s, most of these had either petered out or converted into Washington-based advocacy groups. The two exceptions are the National Rifle Association and the networks around evangelical church groups, which gave impetus to the right-wing Tea Party movement around the Republicans.

Rising to the challenge

This issue has emerged internationally as a layer of the new generation initially shunned organisation and the idea of political parties. This was partly a reflection of the hostility that developed towards the traditional parties of the left, once they had embraced capitalism and betrayed workers and young people. Combined with this was opposition to bureaucratic, top-down methods. Following their experience gained in the struggle, which pointed to the need for increased organisation, layers of workers and young people began to overcome this and new parties emerged, like Podemos in Spain or Syriza in Greece.

However, these new parties also failed the movement and adopted top-down bureaucratic methods, under the guise of ‘horizontalism’. Both these parties have now suffered a collapse, or dramatic fall, in support. This poses the need to build genuine parties of the working class and young people that are democratic and armed with a programme to break with capitalism. These crucial developments are not addressed by Kuttner.

The emergence of the myriad of groupings and networks that developed around Sanders’ presidential campaign in 2016, and other movements, illustrates how the opposition to organisation and political parties is beginning to change. Within this, the seeds are being laid for the formation of a new, radical left-wing party in the US, from which a party of the working class can develop. Unfortunately, Sanders missed an opportunity to break from the Democrats and form a new party in 2016 – a mistake compounded by the way he is participating in the present presidential campaign.

The ideas and analysis in Robert Kuttner’s book are important for Marxists to address. He articulates an alternative programme to the right-wing capitalist politicians, one which some like Bernie Sanders are advocating. They challenge the right-wing agenda of the likes of Donald Trump and Boris Johnson and are, in outline, the ideas of an emerging reformist programme. However, while incorporating many issues and ideas that socialists and Marxists would support, they are inadequate to break with capitalism. To do this, a real socialist alternative is necessary, as a matter of urgency.